The USD/JPY's monthly chart shows a pennant breakout, meaning the rally from the September 2012 low of 77.13 has resumed.
The currency pair picked up a bid on Tuesday after the Bank of Japan (BOJ) lowered the price outlook and made its ultra-loose policy more sustainable for a long time.
The long-term yield target range has been widened to 0.2 percent from the previous 0.1 percent, i.e. the central bank is now willing to tolerate bigger deviation in the long-term yield. So, bond purchases might drop, courtesy of a wider range.
While some may call it a hawkish tweak, it was well short of an outright hike in long-term yield target that many in the market were expecting and had prepared for via long JPY put options.
Consequently, the JPY was offered after the BOJ decision. All-in-all, the BOJ has enabled itself to prolonged monetary easing, meaning the bond yield differential will likely continue widening in the USD-positive manner.
As a result, the USD/JPY could build on a long-term bull breakout seen in the monthly chart below.
The pair closed well above 111.55 yesterday, confirming a pennant breakout – a bullish continuation pattern – which indicates the bull run from the September 2012 low of 77.13 has resumed.
So, as per textbook rules, the spot could target 118.66 (December 2016 high) in the near-term and is seen challenging 125.856 (June 2015 high) in the long-term.
The relative strength index (RSI) is hovering just above 50.00 (in the bullish territory), indicating plenty of scope for a rally to decade highs above 125.50. The RSI on the weekly and the daily chart also favors a stronger rally.
Notably, the pennant breakout has opened the doors to completion of the inverse head-and-shoulders bullish reversal pattern. The neckline resistance is located at 126.40.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.