- The USD/JPI outlook is weakening as the BoJ said it will continue to buy government bonds at the current rate.
- The dollar was strong due to safe haven inflows from the Eurozone.
- The US producer price index report showed softer than expected wholesale inflation.
The USD/JPY outlook remains bullish as the yen hovers near a one-month low following a surprisingly dovish stance by the Bank of Japan. At the same time, the dollar was firm as investors sought reassurance amid political uncertainty in the eurozone.
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The Bank of Japan kept rates unchanged on Friday and said it would continue to buy government bonds at the current rate. Meanwhile, market participants expected the central bank to announce a reduction in its bond purchases. The central bank, however, said it plans to reduce these purchases next month. Consequently, yen and Japanese bond yields fell.
Furthermore, investors expect the BoJ to raise rates sometime this year. However, there is uncertainty about the timing, with recent data showing weak consumption in the country.
Elsewhere, the dollar was strong on safe haven inflows from the eurozone. Investors have been worried since French President Emmanuel Macron announced snap elections. This led to political uncertainty, which drove traders away from risky assets.
Meanwhile, economic data throughout the week reinforced expectations that the Fed will cut rates in September. On Thursday, data revealed more cracks in the US labor market, with jobless claims increasing from 229,000 to 242,000 in the previous week.
At the same time, the producer price index report showed softer-than-expected wholesale inflation, which is likely to put more pressure on the Fed to cut interest rates. PPI fell from 0.5% in the previous month to -0.2% in May. This came after the consumer inflation report revealed a lower than expected figure. Although the Fed was cautious at its policy meeting, investors expect at least two rate cuts in 2024.
USD/JPI Key Events Today
- Prelim UoM consumer sentiment
USD/JPI Technical Outlook: Bulls break above 157.50 resistance
On the technical side, the USD/JPI price broke above the 157.50 resistance level to make a higher high. This has put the price well above the 30-SMA and the RSI is closer to the overbought region, supporting a solid bullish bias.
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At the same time, the price is trading in a bullish channel, with an immediate movement towards channel resistance. However, before that, USD/JPI could retest the recently broken 157.50 level before climbing the channel resistance.
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