USD/JPY Price Analysis: Bears step in, but there is some work to do yet

• USD/JPY bears are moving in but there could be some more working of the highs to come yet. 
• The price has rallied parabolically and a pullback could be on the cards.

USD/JPY rallied on Tuesday and took out the symbolic level of 142, scoring a fresh 24-year low as the US dollar sprung into life again and while the gap between Japanese monetary policy and its counterparts widens. USD/July hit the highest levels since August 1998. 

The Japanese Finance Minister Shunichi Suzuki jaw-boned the currency but that did nothing to prevent it from falling to a 24-year low on Tuesday. He reiterated that sharp yen moves were "undesirable" and that he was watching rising volatility in the exchange market with a "great sense of urgency". 

"It's important for currencies to move stably, reflecting economic fundamentals," Suzuki told reporters at the finance ministry. When pressed to comment on the impact of a weak yen on the economy, Suzuki said "a weak yen has both merit and demerit, but sharp moves are undesirable." 

The yen has slumped nearly 20% since the start of the year, on diverging monetary policies between Japan and the United States. However, the Reserve Bank of Australia also hiked rates this week and the focus will turn to the European Central Bank which is also expected to pull the trigger again, potentially hiking as high as 75bps.

Meanwhile, the US dollar has been a major culprit in the extreme moves in forex this week. On Tuesday, data was the catalyst again with the August ISM services index beating expectations, rising to 56.9 (56.7 previously, 55.3 expected).  ''The data complement the labour market’s strength and suggest that the economy remains some distance from recession,'' analysts at ANZ Bank said.

USD/JPY technical analysis

The price could be in for some corrective activity for the day ahead and the 50% mean reversion level signs with the first three hours of Wall Street's high. 

From a 15-min time frame basis, the peak formation is more convincing, but a correction to the 61.8% could still be on the cards to restest the support of the topping formaiton. A downside extension of the bearish breakout impulse could be on the cards thereafter.