- Japan cut its first-quarter GDP data to show the economy shrank more than reported.
- A rise in US Treasury yields weighed on the yen.
- Investors await Fed Chairman Powell’s speech.
USD/JPI price analysis shows a strong uptrend as the yen continues to fall due to the interest rate differential between Japan and the US. At the same time, economic data from Japan shows little chance that the Bank of Japan will raise rates at its next policy meeting.
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The dollar continued to gain against the yen on Tuesday as the market focused on the wide gap in interest rates between Japan and the US. Notably, data from Japan on Monday showed the country cut its Q1 GDP numbers, showing the economy shrank more than reported. The economy shrank by 2.9% year-on-year, compared with a reported 1.8% decline.
These new figures complicate the outlook for a rate hike in Japan. A vulnerable economy could weaken further with high borrowing costs. However, if the Bank of Japan continues to delay raising interest rates, the gap between Japan and the US will remain wide, hurting the yen.
At the same time, rising US Treasury yields weighed on the yen. Yields rose in the previous session, boosting the greenback as markets priced in the possibility of a Trump victory. This followed last week’s debate, in which Trump came out stronger than Biden. A Trump administration would likely lead to an increase in inflation, which would strengthen the dollar.
Meanwhile, investors await Fed Chairman Powell’s speech later today for clues on the prospects for a rate cut. The cautious tone could further boost the dollar.
USD/JPI Key Events Today
- Fed Chairman Powell’s speech
- US JOLTS job openings
USD/JPI price technical analysis: Bulls weaken as they approach the 162.01 level
On the technical side, USD/JPI is quickly approaching the 162.01 level. The price is in a steep bullish trend, well above the 30-SMA. At the same time, the RSI is trading near the overbought region, supporting bullish momentum.
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However, it made a lower high while the price made a higher high. This indicates a bearish divergence due to weakening bullish momentum. Therefore, there is a good chance that the price will reverse soon. If that happens, it could retest the 30-SMA or break below to the 160.00 support level.
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