On Wednesday, the Japanese Yen (JPY) attracted buyers for the second consecutive day. The USD/JPY currency pair fell to the new daily low in the 147.15 area. As the European session draws near, all eyes are on the pair’s movement. They report on contradictory mixed signals from Japan and theorize about next Bank of Japan (BoJ) interest rate increases.
Take for instance, the recent Tuesday session where the USD/JPY pair failed to maintain its strength above the all-important 148.00 handle. This oversight provided an invitation for sellers to assume ownership in the currency market. This bearish trend has been made worse by Japan’s trade balance report from earlier today, which showed a trade deficit of ¥117.5 billion. This figure contrasts sharply with the previous forecast of a surplus exceeding ¥196.2 billion, emphasizing the recent economic woes plaguing Japan.
In very recent memory—within the last two weeks—the USD/JPY pair has traded wildly in a 10-yen range. This sharp movement brings to light the uncertainty in today’s currency market. The recent fall in the pair comes after a slew of disappointing domestic data that has dampened trader’s optimism. If hopes for a peaceful resolution to the Russia-Ukraine conflict, as they previously did for JPY. Geopolitical tensions remain a key worry.
Yet even amid these rising challenges, the Bank of Japan’s outlook continues to be hawkish. This aggressive stance has continued to prevent deeper losses for the Yen. If the BoJ were to contribute to global policy normalization, it wouldn’t be too surprising. If so, that would raise the likelihood of at least one interest rate hike before year’s end. If the USD sees sustained buying interest, that would strengthen the USD/JPY pair. This kind of support is almost a sure thing as we near the scheduled release of the Federal Open Market Committee (FOMC) Minutes.
Traders of the currency pair are on high alert as it approaches the key technical levels. This last measure is to monitor closely the support zone around 147.10-147.00. If the price closes below this zone, it may set off a rapid drop. This would send the USD/JPY pair nearer to retesting multi-week lows near 146.20. If the buying interest remains firm, the pair might push higher towards the next hurdle near the 148.55-148.60 zone. This area corresponds with the 50% retracement of its recent decline from monthly peaks.
Looking at the macroeconomic picture, Japan’s economic performance is full of positive signs. In July, imports fell by 7.5% y-o-y, a less severe contraction than the expected -10.4% decline. Traders are going to be extremely jittery and quick to respond to the mixed economic news. They will change their views as they react to the news, creating temporary lumpy market movements.