(eToro Blog) The dollar consolidated yesterday against the Yen, as a weak Japanese economy and a positive interest rate differential, drew investors to the greenback.

As the US moves away from quantities easing in June, and the BOJ continues to stimulate its economy, yield should become the driving force affecting the USD/JPY.

Most analysts expect that the inherent weakness in the Japanese Yen will remain in place as commodity prices rise and investor risk appetite recovers.

The Japanese central bank is unlikely to raise rates any time soon.

That's because the economy remains exceptionally fragile and growth tepid following the devastating March earthquake.

Last week's slew of data suggests that, for the time being at least, the deflationary trend persists.

The Japanese economy contracted in the first quarter, with preliminary GDP estimates showing -0.9% contraction; on an annualized basis the estimates suggest a -3.7% contraction.

Industrial production is down into negative territory, as is capacity utilization; on the domestic side, consumer confidence levels fell, unsurprisingly.

Sentiment Is Bullish -The USD/JPY has moved off of lows last week near support levels which coincide with the intervention level near 80.50.

The 20-day moving average near 81.00 should prove to be solid support, with the 50-day moving average acting as resistance near 82.00.

The first target on the upside is the 83.00 level, and then 85.00.

The Downside risk is seen in case of a close below below the 81 to 80.50 region.

The EUR/JPY has witness the 60-day moving average crossing above the 200-day moving average at the beginning of the month, a clear bullish signal.

Downside momentum will likely continue to ease, with support on the cross coming in near 115.

Resistance is seen near the 50-day moving average near 118.00.

The upside trajectory is heading to 117.4 with the 120 level as the long term target.

Copyright 2011 eToro Blog

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