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USDJPY Just Moderately Lower on the Week, Focus on BOJ Ahead

JPY
  • Despite the impressive 350 pip range for USDJPY this week, the pair sits just moderately lower as markets digest the most recent intervention from the MOF/BOJ and the upcoming central bank meeting at the end of July.
  • The underlying softening of US data prompted an extension lower for USDJPY, exacerbated by a yen positioning squeeze as analysts scrutinised the attractiveness of carry trade strategies. USDJPY printed as low as 155.38 on Thursday, however, safe haven dollar demand has provoked a strong recovery off these lows to around 157.50 at typing.
  • Slightly softer domestic inflation data overnight may have also contributed to prospects for a BoJ July rate hike diminishing. The Bank of Japan board’s median forecasts for the core-core consumer price index will likely remain unchanged from April's predictions when policymakers meet July 30-31, making a rate hike this month less likely, MNI understands.
  • Recent USDJPY price action confirmed a resumption of the bear cycle that started July 3. There has also been a clear breach of 158.75, a trendline drawn from the Dec 28 low last year. This break highlights a potential reversal and signals scope for a deeper retracement, towards 154.55 next, the Jun 4 low. Initial firm resistance is seen at 159.16, the 20-day EMA.
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