The USD/JPY pair faces challenges as it fails to take advantage of Friday’s modest recovery from the combined support of the 100-day and 200-day Simple Moving Averages (SMAs). The pair edges lower on the first day of the new week, trading just below the mid-138.00s, registering a decline of approximately 0.30% for the day.

China’s weak GDP report confirms the rapid faltering of the world’s second-largest economy’s post-pandemic recovery. Weakening domestic and international demand intensify worries about a global economic downturn, impacting investor sentiment.

Consequently, the safe-haven appeal of the Japanese Yen (JPY) benefits, further weighing on the USD/JPY pair. Adding to this bearish tone, speculation arises that the Bank of Japan (BoJ) may adjust its Yield Curve Control (YCC) policy this month, exerting downward pressure on the pair.

Recent data reveals Japan’s nominal base salary growth at its fastest pace in 28 years in May. This development is expected to push inflation higher, exceeding the 2% goal for over a year.

Japanese media reports suggest that the BoJ may raise its FY2023 inflation forecast, fueling speculation that the central bank could start unwinding its ultra-loose monetary policy sooner than anticipated.

Consequently, the benchmark 10-year Japanese government bond yield reached its highest level since late April last week.

In contrast, market participants increasingly believe that the Federal Reserve (Fed) is nearing the end of its policy tightening cycle. Following the widely expected 25 bps interest rate hike in July, it is anticipated that the Fed will maintain steady rates.

Consequently, fresh selling pressure emerges around the US Dollar (USD), which remains near its lowest level since April 2022, contributing to the USD/JPY pair’s mildly bearish tone. These fundamental factors favor bearish traders and suggest that the pair is likely to continue trending downward.

Market participants eagerly await the release of the Empire State Manufacturing Index during the early North American session. The data could influence USD price dynamics and provide some momentum for the USD/JPY pair.

Additionally, traders should keep an eye on broader market sentiment for short-term trading opportunities.


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