USD/JPY forecast: Break above the recent high of 112.17 likely

USD/JPY has bounced up from the trendline connecting March 25 and April 11 lows, saving the day for the bulls and could break above the recent high of 112.17, reviving the bullish view put forward by the falling channel breakout seen earlier this month. 

The Japanese Yen picked up a bid earlier today, pushing the USD/JPY pair down the ascending trendline support of 111.65 after Japan's Finance Minister Aso called the Bank of Japan and Janapese government's fight against deflation as a mistake. 

Aso added further that "Japan has no intention of testing the modern monetary theory, which states, the countries which issue their own currency never run out of the supply of money the way private sector organizations and individuals do". The theory essentially means governments could always print money out of thin air. 

Aso ruling out the modern monetary theory and criticizing the battle against deflation could be considered a sign of growing exhaustion over the unprecedented stimulus in the upper echelons of government. 

Even so, the pair managed to defend the ascending trendline and is currently trading largely unchanged on the day at 111.91. The JPY may have found offers, possibly due to dovish comments from a senior BoJ official. 

Looking forward, USD/JPY will likely rise above the recent high of 112.19, reviving the short-term bullish view, possibly due to increased Dollar demand from Japanese oil importers. 

Oil prices are bid at five-month highs on the decision by the US to force Iranian oil exports (supplies) to zero by ending sanctions exemptions for major importers like Japan and India. 

The Dollar-bullish argument would further strengthen if the US treasury yield confirms a falling channel breakout with a convincing move above 2.6%. 

USD/JPY daily chart

As seen above, the spot has established a second bullish higher low along the rising trendline, reinforcing the falling channel breakout seen on April 11. 

The pair, therefore, appears on track to set another bullish higher high above the recent high of 112.17 and rise toward 113.00. 

The bullish case view would be aborted if the spot finds acceptance under the rising trendline, although that looks unlikely amid oil rally. 

10-year treasury yield daily chart

A falling channel breakout, if confirmed, would imply an end of the sell-off from the highs near 3.25% seen in early November.