Yen Weakens On Broad USD Gains, Japanese Households Curb Spending

USD/JPY Analysis, Chart, and Price

• USD/JPY closes in on June Peaks
• Weaker Chinese trade data has given the Dollar a lift
• Japanese demand weakness also knocked the Yen

The Japanese Yen fell further against the United States Dollar on Tuesday, chiefly thanks to a new run of general Dollar strength. But it was also weakened by domestic Japanese numbers.

The Asian session was dominated by Chinese trade data which showed surprise falls in both exports and imports last month. The numbers added to a picture of a Chinese economy still firmly in the doldrums even as Covid and its awful effects fade into the past. They put it in marked contrast to a rather better-performing United States. Of course, there’s some patchy data there, too, but on the whole, investors still dare to hope for a soft landing in the world’s largest national economy.

The US trade deficit was found on Tuesday to have narrowed in June, according to official data. However, imports dropped to their lowest level in eighteen months, suggesting that domestic demand has slowed after a series of interest-rate rises.

The Dollar remains broadly supported by comments from Federal Reserve officials. They seem keen to stress that those interest rates could still have further to rise whenever they get near a microphone, journalist or op-ed.

Governor Michelle Bowman and New York Fed President John Williams have swelled the chorus already this week, with the former perhaps a little more hawkish-sounding than the latter.

The Japanese Yen was further hit by news of a reduction in household spending in its home country. That indicator fell by 4.2% in June, ahead of expectations, after a 4% fall in the previous month.

Inflation remains elevated in Japan, but the Bank of Japan has said it won’t alter its long-term, ultra-loose monetary settings until wages start to rise. Adjusted for inflation pay has actually fallen for fifteen straight months, so we’re clearly not there yet. But the BoJ’s view that inflation is internationally generated and therefore no reason for a policy rethink is attracting increasing investor attention.

Immediate market focus will now turn to Chinese inflation figures which are coming up on Wednesday.

The annualized rate is expected to have contracted by 0.4% in July, after a flat result in June. If seen this will add to concerns that China’s economy is in need of more stimulus and, likely, lend more support to the US Dollar across the board.

US Consumer Price Index figures are coming up on Thursday. See the DailyFX Economic Calendar

US Dollar/Japanese Yen Technical Analysis

USD/JPY Daily Chart Compiled Using TradingView

USD/JPY is edging back up toward June’s seven-month peaks and currently occupies the middle reaches of a well-respected uptrend channel. Dollar bulls’ immediate concern must be to retake the highs of last week between 143.22 (last Wednesday’s closing high and 143.98 (Thursday’s intraday peak). They’re very close to the lower boundary of that band but have yet to convincingly retake it.

Near-term support comes in at 141.64, last Friday’s intraday low. Below that there’s likely support at 140.74. That’s the first, Fibonacci retracement of the rise from January’s lows to the peaks of June. Channel support comes in at 138.74 but that doesn’t look to be in any danger of a near-term test.

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IG’s own sentiment indicators suggest that further near-term gains for USD/JPY could be hard-won from here, with traders turning a little more bearish on the pair’s prospects. Fully 72% of participants declare themselves bearish at the moment, but that’s a heavy bias that may see some trimming especially if the week’s data feed divergent views on the Chinese and US economies.

By David Cottle for DailyFX