The USD/JPY pair extends its rally to around 156.60 during the early Asian session on Friday, marking the highest level since July 23. The pair’s upward movement is largely driven by the strength of the US Dollar (USD), supported by remarks from Federal Reserve (Fed) Chair Jerome Powell and stronger-than-expected US economic data. Traders are now awaiting the release of US October Retail Sales data later today, which could offer further clues on the trajectory of US consumer spending and inflation.
Japan’s GDP Data Shows Modest Growth, Yen Remains Weak:
Japan’s Preliminary GDP for Q3 grew by 0.2% quarter-on-quarter (QoQ), in line with market expectations but down from the previous quarter’s 0.5% growth. On an annualized basis, GDP rose 0.9%, exceeding the consensus of 0.7%, but sharply lower than the 2.2% growth seen in Q2.
The Japanese Yen has reacted negatively to the GDP report, continuing its weakening trend against the US Dollar. Despite beating expectations for annual growth, the slowdown in GDP growth highlights the ongoing challenges Japan faces in its economic recovery.
BoJ’s Uncertainty Over Rate Hikes Pressures the Yen:
Bank of Japan (BoJ) Governor Kazuo Ueda recently highlighted that the central bank will be closely monitoring income data to guide future policy decisions, including the potential for rate hikes. This uncertainty about the BoJ’s future policy stance adds to the bearish sentiment for the JPY.
While verbal intervention from Japanese authorities, including comments from Finance Minister Katsunobu Kato, may limit some of the JPY’s losses, the USD remains firmly supported by the broader US economic strength.
Fed’s Powell Comments Fuel USD Strength:
Fed Chair Jerome Powell signaled that the US economy remains strong and that the Fed has no immediate need to cut interest rates.
His remarks have helped lower market expectations for a rate cut in December, boosting the US Dollar and driving the USD/JPY pair higher.
Richmond Fed President Thomas Barkin also echoed Powell’s cautious stance, stating that while progress has been made, there’s still work to be done to maintain economic momentum. This, along with stronger US Producer Price Index (PPI) data, has helped lift expectations for the US Dollar.
As a result, markets have lowered the probability of a 25 basis point (bps) rate cut by the Fed at the December meeting, with the CME FedWatch Tool showing a drop in expectations to 59.1%, down from 75% last week.
Technical Outlook for USD/JPY:
The USD/JPY pair has broken through key resistance levels, trading near 156.60, and the bullish trend appears to remain intact for now.
Immediate resistance is seen at 157.00 and 159.00, where further upside potential could come into play if US economic data continues to outperform expectations.
On the downside, support is located at 155.50, followed by the 154.00 region. A break below these levels could signal a potential reversal or consolidation phase for the pair.
The Relative Strength Index (RSI) is approaching the overbought zone, suggesting that a near-term pullback or consolidation is possible before further upside.
Key Events to Watch:
US October Retail Sales and Industrial Production data (released later today) will be critical for providing further direction for the USD/JPY pair, particularly in terms of gauging the strength of the US economy and adjusting rate cut expectations for the Fed.
Related Topics:
