Title: Japanese Yen Weekly Forecast: Will USD/JPY Break 145? Key Data in Focus
Original article by James Hyerczyk. Rewritten and expanded version.
Overview
The Japanese Yen (JPY) faces increasing pressure as the USD/JPY currency pair approaches the critical 145 level. This key threshold may act as a psychological barrier and a potential line in the sand for Japanese authorities considering currency intervention. Investors are keeping a close watch on major upcoming economic events, including Japan’s revised second-quarter GDP data and the August inflation figures from the United States. These reports might determine whether the dollar continues climbing or if a reversal is on the horizon.
Last week, the USD/JPY continued its upward trajectory, gaining momentum amid diverging monetary policies between the U.S. Federal Reserve and the Bank of Japan (BOJ). While the Federal Reserve maintains its hawkish stance, signaling the possibility of additional interest rate hikes, the BOJ remains firmly entrenched in its ultra-loose monetary policy regime. This widening policy gap has helped support U.S. dollar strength and keep the yen under significant pressure.
Primary Drivers Influencing the USD/JPY Pair
The following factors will play a central role in determining the next move in the currency pair:
1. Diverging Monetary Policies:
• The Federal Reserve remains data-dependent but leans hawkish, with market expectations pricing in at least one more rate hike in 2023.
• The U.S. economy has shown robust data across various fronts, such as labor market strength and sticky inflation, justifying higher rates for a longer period.
• In contrast, the Bank of Japan remains dovish, continuing to implement yield curve control (YCC), negative interest rates, and massive asset purchases.
• The policy divergence has weakened the yen’s appeal, particularly in carry trade strategies, where traders borrow yen at low rates to buy higher-yielding assets in other currencies.
2. Technical Resistance at 145:
• The 145 level on the USD/JPY chart is being closely monitored by market participants and policymakers alike.
• A clear break and sustained trading above this level could be perceived as a green light for further dollar gains.
• However, this area may act as psychological resistance, especially considering the possibility of official Japanese intervention, as seen in prior episodes when the yen was depreciating rapidly.
• BOJ officials have previously intervened near this level to support the currency.
3. Intervention Risk:
• Japanese authorities, including the Ministry of Finance and the BOJ, have expressed concern about rapid depreciation of the yen.
• Past interventions in the foreign exchange market have taken place around similar levels, often after a sharp, speculative move in the currency.
• Traders are cautious about pushing USD/JPY much higher without clearer signals from Japanese officials on the likelihood of currency support measures.
• Vigilance regarding verbal jawboning or potential actual intervention should be paramount throughout the upcoming week.
Key Economic Data to Watch This Week
Two major economic reports could define the path for the USD/JPY in the near term:
1. Japanese Revised Q2 GDP:
• Scheduled for release early in the upcoming trading week.
• Preliminary GDP estimates indicated weaker-than-expected growth for the second quarter, largely attributed to stagnant domestic consumption and subdued export demand.
• The revised numbers will either confirm economic fragility or provide a more optimistic view, potentially affecting BOJ policy expectations.
• If GDP data proves stronger than forecast, it could diminish the chances of further BOJ accommodation, offering support to the yen.
2. U.S. Consumer Price Index (CPI) for August:
• One of the most closely watched inflation metrics by the Federal Reserve and global markets.
• Expected to influence the central bank’s rate decision at its upcoming September monetary policy meeting.
• Core CPI, which excludes volatile food and energy prices, will be especially important as it reflects more persistent inflation trends.
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