Yen's Recovery and Weakening Against US Dollar Possible

Japan's wholesale inflation continued to slow in June, marking the sixth consecutive month of decline. The decrease can be attributed to falling fuel and commodity prices, indicating a gradual easing of cost-push pressures that previously drove up consumer prices. This data aligns with the Bank of Japan's (BOJ) perspective, which anticipates a slowdown in consumer inflation in the coming months due to the declining global commodity prices from the previous year's peak levels.

Import prices in yen terms witnessed the largest annual drop since July 2020, falling by 11.3% in June compared to the previous year. This decline brings relief to retailers heavily reliant on imported raw materials.

In May, Japan's current account surplus more than doubled year-on-year, marking a fourth consecutive month of gains. This increase can be attributed to a narrower trade deficit and income gains from overseas investments, including dividend payments from business affiliates and interest payments from securities investments. Despite the country's heavy reliance on fuel and raw material imports and the decline in its position as an export powerhouse, income gains from overseas investments have become a significant contributor to Japan's earning power.

The BOJ remains committed to maintaining an ultra-loose monetary policy until inflation shifts from being cost-driven to being driven by robust domestic demand, accompanied by higher wages. The bank acknowledges that wage hikes have been broadening across many regional areas of Japan, particularly among small and mid-sized firms facing labor shortages. Some firms are considering raising prices to counter rising labor costs.

While there is optimism regarding wage growth and the potential for sustained inflation, uncertainty remains as to whether firms will continue to increase wages in the following year. The BOJ's branch managers overseeing major cities are cautious about the impact of slowing global growth on corporate earnings.

Meanwhile, the U.S. dollar experienced a decline, reaching a two-month low against a major currency index. Federal Reserve officials indicated that the U.S. central bank is approaching the end of its tightening cycle. The market is eagerly awaiting U.S. inflation data, which is expected to show a 5% annual increase in core consumer prices for June. These figures will provide further insight into the Federal Reserve's progress in combating inflation.

Due to these factors, there is a possibility that the yen's trajectory could see a recovery and a slight weakening against the US dollar following its nearly 1% appreciation against the dollar in the previous day. The yen's movement could be influenced by Japan's improving current account surplus, potential intervention by the BOJ in the future, and the easing of inflationary pressures. Conversely, the US dollar's performance will depend on the Federal Reserve's policy decisions and inflation data.

Data for Technical Analysis (5H) CFD USD/JPY

Resistance : 144.86, 144.90, 144.96

Support : 144.74, 144.70, 144.64

5H Outlook

Source: Investing.com       

Buy/Long 1 If the support at the price range 144.64 – 144.74 is touched, but the support at 144.74 cannot be broken, the TP may be set around 144.86 and the SL around 144.56, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 144.86 – 144.96, TP may be set around 145.00 and SL around 144.69, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 144.86 – 144.96 is touched, but the resistance at 144.86 cannot be broken, the TP may be set around 144.70 and the SL around 145.04, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 144.64 – 144.74, TP may be set around 144.53 and SL around 144.91, or up to the risk appetite.       

Pivot Points Jul 12, 2023 02:22AM GMT

Sources: Investing 1, Investing 2