- After a lukewarm Tokyo CPI report, the Japanese Yen sees some selling pressure.
- Increased USD buying helped lift the USD/JPY pair.
- Positive sentiment around US trade agreements and BOJ rate hike expectations may curb JPY declines.
The Japanese Yen (JPY) continues its retreat against the strong US Dollar (USD), pushing the USD/JPY pair into the mid-147.00s during Friday’s Asian trading hours. The cooling consumer inflation in Tokyo, coupled with political instability at home, may complicate the Bank of Japan’s (BOJ) ability to normalize its policies. This, along with recent optimism over trade, has contributed to the Yen’s continued struggles against its US counterpart for the second consecutive day.
On another note, the newly established trade agreement between Japan and the US seems to have eased some economic uncertainties, generating hopes that the BOJ might soon raise interest rates. If this is the case, it could somewhat rebut aggressive JPY selling. However, the USD might find it tough to maintain strong buying momentum due to ongoing concerns about the Federal Reserve’s independence, which could further stabilize the USD/JPY pair as traders await the release of US durable goods orders for quick opportunities.
Japan’s Yen remains cautious amid soft Tokyo CPI and demand for safe-haven assets
- The Japan Statistics Bureau reported on Friday that Tokyo’s Consumer Price Index (CPI) rose by 2.9% in July, down from 3.1% the month before. The core CPI, which excludes volatile fresh food prices, also surged by 2.9%, slightly below the 3.0% forecast and down from 3.1% in June.
- Moreover, the core CPI—closely monitored by the BOJ as an indicator of domestic inflation—has dropped from a prior annual rate of 3.1% to 2.9% in July, signaling easing inflation in Japan.
- Political risks are also growing, particularly following the recent Senate elections that saw the ruling coalition face setbacks. This may delay interest rate hikes, putting additional pressure on the Yen.
- The USD has bounced back from multi-week lows, contributing to the USD/JPY’s rise to mid-147.00s during Asian trading hours. Yet, doubts about the Fed’s potential rate cuts could limit the dollar’s gains.
- Recent data revealed that initial US unemployment claims decreased from 221K to 217K for the week ending July 19. However, ongoing claims remained stable at 196 million, close to the highest figures seen since 2021.
- Additionally, S&P Global’s initial PMI readings indicated that while manufacturing activity slowed, service sector demand picked up in July. Overall business activity, as measured by the combined PMI, rose from 52.9 the previous month to 54.6.
- Nonetheless, the robust US labor market underscores expectations that the Federal Reserve will keep interest rates steady next week, despite President Trump’s ongoing pressure for lower rates during his rare appearance at the Fed.
- The US-Japan trade agreement, announced earlier this week, has mitigated some economic uncertainty and bolstered the possibility of the BOJ resuming its tightening cycle later this year. This development can offer support to the Yen and potentially limit further gains for the USD/JPY pair.
- Later today, the US economic calendar highlights the upcoming release of durable goods orders during North American trading sessions. Alongside this, broader risk sentiment may drive safe-haven demand for the Yen.
USD/JPY must break through the 147.60 resistance level.
From a technical viewpoint, Thursday’s USD/JPY bounce off the 145.85 area, which includes the 100-day simple moving average and a key retracement level, supports the case for potential bullish movement. If the pair exceeds the 147.60 level, that could reinforce a positive outlook, pushing the rate back towards the 148.00 mark. There’s even a possibility for further gains towards the weekly peak around 148.65, with potential attempts to breach the 149.00 level.
On the flip side, the 147.00 level seems to act as an immediate support, with downside risks extending to the 146.70-146.65 zone, corresponding to a 38.2% Fibonacci retracement level. This includes a 100-day SMA near 146.55, where a further slide could see levels drop below 146.00. If a bearish move occurs below the 145.75 area (the low from July 10), the spot prices could then trend towards 145.20-145.15 or even the 61.8% Fibonacci level approaching 145.00.
