USD/JPY Price Analysis – Sep 05, 2023

Daily Price Outlook

The USD/JPY currency pair continued its upward trajectory for the third consecutive day on Tuesday, maintaining its positive stance. During the early European session, the pair surged above the mid-146.00s, presently hovering near 146.72, marking a 0.16% gain for the day. Several key factors contributed to this upward momentum. Firstly, Japanese Household Spending witnessed a significant decline, which weighed on the Japanese yen's strength, thereby bolstering the US dollar's position.

Secondly, the mixed US employment data created a sense of uncertainty regarding the Federal Reserve's tightening policy, causing market participants to revise their expectations. Thirdly, upbeat manufacturing PMI data added to the dollar's strength, further supporting the USD/JPY pair.

Investors are now anticipating coming economic releases, including US Factory Orders, US ISM Services PMI, and Japanese Gross Domestic Product (GDP), which may provide additional insights into the currency pair's future movements.

Positive Impact of Weak Japanese Household Spending on USD/JPY Pair

According to recent data, Japanese household spending experienced its sharpest decline in almost two and a half years, with a 5.0% year-on-year drop in July, surpassing the expected 2.5% decrease. This marked the sixth consecutive month of decline. Meanwhile, Japanese Monetary Base data for August showed a 1.2% year-on-year increase, a shift from the previous 1.3% drop.

However, the Bank of Japan (BOJ) is maintaining its loose monetary policy and moving away from yield curve control, with BOJ Board member Toyoaki Nakamura emphasizing the need for more time before considering monetary tightening. However, the divergence in monetary policies between the US and Japan may limit potential downsides for the USD/JPY pair.

Japanese Finance Minister Shunichi Suzuki mentioned that while sudden currency fluctuations are undesirable, there is no current sign of market intervention to support the weakening yen, although they will closely monitor currency movements. Hence, Japan's weak household spending and the BOJ's loose monetary policy have positively impacted the USD/JPY currency pair, contributing to its ongoing rise, supported by policy divergence and a lack of yen-supportive interventions.

Impact on USD/JPY Pair Amid Mixed Economic Data

Apart from this, the mixed US economic data from last week has led to expectations of a more cautious stance from the Federal Reserve (Fed), which is affecting the USD/JPY pair. The CME FedWatch Tool indicates a 93% likelihood that interest rates will remain unchanged in September, with a 38% chance of a rate hike in November.

However, August's Nonfarm Payrolls exceeded expectations at 187K, but the Unemployment Rate dropped to 3.8%. US Manufacturing PMI also outperformed predictions at 47.6. Today, the US dollar's gains are limited as Wall Street observes Labor Day.

USD/JPY - Technical Analysis

The USD/JPY pair has opened today's trading session on an upbeat note, successfully surpassing the 146.55 mark and making endeavors to consolidate above this level. This movement suggests a potential cessation of the recent bearish correction, with the pair positioning to realign with its prevailing bullish trajectory. The anticipated upward targets are set initially at 147.55, progressing to 148.40 as a subsequent focal point.

The EMA50 underpins the pair, bolstering the bullish perspective. This optimistic outlook will persist unless there's a decline below the 146.55 level, further intensified by a drop beneath the 145.95 threshold. For the day, the trading range is projected between a support at 146.10 and resistance at 147.60.