- Recent data revealed that inflation in Tokyo has fallen below 2%.
- Investors are closely monitoring the upcoming election in Japan.
- Economic indicators showed a significant increase in US business activity.
The analysis of USD/JPY suggests a bleak outlook for potential rate hikes from the Bank of Japan following the decline in Tokyo’s inflation below the 2% target. Consequently, the yen remains weak, close to a three-month low, on track for a fourth consecutive week of losses. In the meantime, the dollar has seen a slight retreat alongside Treasury yields but stays near its recent highs.
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Friday’s data showed that inflation in Tokyo has dipped below the Bank of Japan’s 2% objective, posing challenges for the rate hike outlook. The central bank has been aiming for higher inflation and increased consumption to bolster its rate-hiking strategy. However, diminished pricing pressure may lead to further postponements in rate hikes, putting additional pressure on the yen.
Simultaneously, market participants are watching the forthcoming election in Japan, which could influence the Bank of Japan’s policy direction. Polls indicate that the ruling party may lose its majority, potentially altering fiscal policy perspectives. Such changes could also impact future rate hike strategies.
At the same time, the dollar maintains its strength against most currencies in anticipation of the US presidential election. Despite a minor pullback on Friday, the dollar is on track for another week of gains. This week’s dollar rally has been driven by rising concerns regarding escalating tensions in the Middle East.
Additionally, speculations surrounding the November election have triggered market fluctuations. Initially, Trump was in the lead, which bolstered the dollar. However, this trend shifted following a Reuters poll indicating that Kamala was ahead.
In other news, economic reports released Thursday highlighted a spike in US business activity. Moreover, unemployment claims dropped more than anticipated, reinforcing a slower pace for potential Fed rate cuts.
Crucial USD/JPY Events for Today
The trading pair may conclude the week with minimal activity, as neither the US nor Japan is expected to publish significant reports.
Technical Price Analysis of USD/JPY: Bulls Target 153.00
From the technical perspective, the USD/JPY pair has pulled back after encountering robust resistance at the psychological level of 153.00. Nevertheless, bulls continue to dominate despite this setback. The price remains above the 30-SMA, and the RSI indicates bullish momentum. This suggests that there is potential for upward movement.
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If there’s a rebound near the 30-SMA, bulls may attempt to challenge the 153.00 mark for another high. A breakout above this level could signal the ongoing bullish trend.
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