USD/JPY Price Analysis – Aug 25, 2023

Daily Price Outlook

The USD/JPY currency pair has suceeded to extend its upward stance and risen to around 146.00 in early European trading, recovering from recent losses. However, this upward trend is partly due to mixed inflation data in Japan, which is keeping the Japanese Yen (JPY) under pressure. Furthermore, the JPY is facing concerns of immediate government intervention and a more dovish stance from the Bank of Japan (BoJ).

Apart from this, the USD/JPY pair has been boosted by strong US employment data, higher US Treasury yields, and uncertainty surrounding the US Federal Reserve's September policy tightening. These factors collectively contribute to the recent strength in the USD/JPY pair.

Tokyo's Lower-than-Expected Inflation and Its Impact on USD/JPY

According to recent data, consumer prices in Tokyo, Japan, rose less than anticipated in August. The Tokyo Consumer Price Index (CPI) grew by 2.9% annually, falling short of the expected 3.0% and down from 3.2% in the previous report. Meanwhile, Tokyo CPI ex Food, Energy (YoY) remained consistent at 4% whereas Tokyo CPI ex Fresh Food (YoY) declined to 2.8% against the market consensus of 2.9%. The index printed the 3% figure in July.

The lower-than-expected consumer price growth in Tokyo could weaken the Japanese yen. If inflation continues to lag, it may prompt the Bank of Japan to maintain its accommodative policies, potentially leading to a stronger USD/JPY pair as the US dollar gains relative strength.

Factors Pressuring Japanese Yen (JPY) and Impact on USD/JPY Pair

Moreover, the Japanese Yen remains under pressure due to the Bank of Japan's (BoJ) more cautious approach. The BoJ stands alone among central banks with its negative interest rates policy. Policymakers also stress the need for sustainable wage increases before they'll consider scaling back their substantial monetary support. These factors weigh on the USD/JPY pair, potentially favoring the US dollar.

USD Strength Spurs USD/JPY Pair Amid Fed and BoJ Influences

The broad-based US dollar regained its strength and rose sharply on the day. The US dollar, measured by the US Dollar Index (DXY), is currently around 104.20 before Fed Chair Powell’s speech. Meanwhile, the USD/JPY pair was also influenced by Bank of Japan (BoJ) Governor Kazuo Ueda’s upcoming speech at the Jackson Hole Symposium. Whereas, the strong US jobless claims data and mixed sentiment about US Federal Reserve policy support the USD/JPY rise. Plus, the pair benefits from higher US Treasury yields and concerns about China's economy affecting export ties with the US. This blend of factors contributes to the USD/JPY pair's recent strength.

USD/JPY - Technical analysis

The USD/JPY pair experienced a notable upward surge in the previous session, surpassing the 145.00 mark and currently reaching the 146.00 barrier. This movement has effectively halted the corrective bearish scenario, revitalizing the prospect of the primary bullish trend. The focus now shifts towards testing the recently established peak at 146.55, marking a forthcoming target. It is worth highlighting that a successful breach of this level would propel the price further, aiming for extended gains at 147.00 followed by 147.90.

Hence, the prevailing sentiment remains inclined towards a bullish bias today. However, it's crucial to acknowledge that a failure to surpass the 146.25 threshold could prompt a decline. This scenario could materialize after the formation of a third lower high, potentially guiding the price back to the corrective bearish trajectory.

The projected trading range for the current session is bounded by the support level at 145.30 and the resistance at 147.00.

Overall, the anticipated trend for today is bullish, but bearish below 146.500.