FxWirePro Short-term Outlook: Yen might weaken to 120 per dollar

The yen breached an important support around 115 per dollar area and we suspect that further weakness is likely. Since Donald Trump’s election, the yen has weakened more than 10.5 percent against the dollar over speculations that higher spending in the United States, under the new administration would generate higher inflation and thus leading to a greater divergence of interest rates. The rise of the equities in the hope of tax reforms in the United States has also pushed down the demand for safe-haven currencies like the yen. In addition to that, the possibility of a new border tax has been detrimental for the Japanese yen as the country enjoys a sizable trade surplus with the United States.

After the election, the yen weakened to as low as 118.6 per dollar but from mid- December it corrected to 111.6 per dollar. Since this critical support was taken out, we suspect that the yen would decline further towards 120 per dollar and 112 per dollar area could be used as a stop loss for this trade. The yen is currently trading at 115.4 per dollar.