The USD/JPY pair, after a decline towards 142.98 on Monday, experienced a momentary pause. However, this brief respite in the yen’s rally shouldn’t be misinterpreted as a reversal. Uncertainty surrounding the extent of the US Federal Reserve’s anticipated monetary policy easing continues to weigh heavily on the dollar. The latest US employment report provided little guidance for adjusting forecasts of the Fed’s interest rate trajectory. Investors are now looking towards this week’s fresh inflation data for more clarity.
The yen has gained significant strength against the US dollar over the past week, strengthening by almost 3.0%. The USD/JPY pair even reached its annual low, fueled by expectations of decisive action from the Bank of Japan (BoJ). The BoJ is expected to raise interest rates by the end of the year, a move supported by steady economic growth, wage increases, and persistent inflationary pressure. If the BoJ’s projections on macroeconomic aspects materialize, the central bank will be prepared to adjust its monetary policy more actively.
Meanwhile, recent data revealed that Japan’s GDP growth in the second quarter was weaker than initially estimated. The economy expanded by only 2.9% year-on-year, compared to the preliminary estimate of 3.1%.
Technical Analysis of USD/JPY
On the H4 chart, the USD/JPY pair has established a consolidation range around the 143.43 level. Recent news has widened this range to 144.00 on the upside and 141.76 on the downside. A move towards the 143.43 level (testing from below) is possible today, followed by a potential decline towards 141.70. Breaking this level could signal a continuation of the downtrend towards 139.70, with the possibility of further development towards 137.77. This scenario finds technical support from the MACD indicator, whose signal line is below zero and pointing sharply downwards.
On the H1 chart, the USD/JPY pair completed a downward impulse towards 141.76 and subsequently rebounded to 143.00. A new consolidation range is nearing formation. Today, a breakout below the lower boundary of this range is likely, with the downward wave potentially continuing towards 140.30 and potentially further towards 139.70. After reaching this level, a correction towards 143.43 is possible. This scenario is also supported by the Stochastic oscillator, whose signal line is above 80 and pointing sharply downwards.
