USD/JPY consolidates losses above 131.50 ahead of US data

• USD/JPY is recovering from a brief dip to near the 131.50 region.
• Markets stabilize after BoJ’s surprise tweak to yield policy.  
• USD/JPY remains vulnerable amid a potential bear flag on the 4H chart.

USD/JPY is licking its wound just above the 131.50 support, as bears bide time before resuming the downtrend. The positive shift in risk sentiment and stabilizing US Dollar, as well as, the Treasury yields, are doing little to put a floor under the USD/JPY pair.

The currency pair remains vulnerable amid mixed comments from Japanese authorities on the Bank of Japan’s (BoJ) surprise policy move. The BoJ stunned markets on Tuesday, with an unexpected revision to its yield control policy, which fuelled a massive 3.8% surge in the Japanese Yen against US Dollar.

However, USD/JPY is poised to break its latest consolidative mode below 132.00 to the downside, as the pair has carved out a bear flag formation on the four-hour chart.

A four-hourly candlestick closing below the rising trendline support at 131.89 will confirm the bearish continuation pattern.

A fresh downswing will be initiated, calling for a retest of the 131.00 round figure. Further south, the four-month low of 130.57 will be the next target on sellers’ radars.

The 14-day Relative Strength Index (RSI) sits flat within the oversold territory, warranting caution for bears.

USD/JPY: Four- hour chart

Should the oversold conditions trigger a renewed upswing, then buyers will need to find a strong foothold above the intraday high of 132.37. Recapturing the 132.50 psychological level is critical to unleashing the additional recovery in the USD/JPY pair.

USD/JPY: Additional technical levels