Home Forex Market Analysis USDJPY Analysis: Expect Marginal Gains by the Yen

USDJPY Analysis: Expect Marginal Gains by the Yen

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USDJPY Analysis: Expect Marginal Gains by the Yen
  • Japan has prolonged its state of emergency given the increase in Covid-19 Delta variant cases.
  • The US Dollar Index (DXY) reacted mildly to the FOMC minutes by declining and bouncing back.

The US dollar was 0.05% lower than the Japanese yen on Friday at 0718 GMT, trading at 109.672. The yen has been on the rise for the past two days, and further gains don’t seem too far-fetched under current circumstances. 

It is expected that the pair will be influenced by adjustments to the US Treasury yields in the coming days. Additionally, the bulls will continue to make good use of the persistent demand for the United States dollar.

Inflation in Japan and the US economy

Increased pressure will be added on the JPY, given the weak domestic economy in Japan as a result of the state of emergency declared in many regions of the country. The high prices of goods are expected to continue weighing down the Japanese yen.

As per the Federal Open Market Committee (FOMC) publication, many members pointed up that the disclosure of asset tapering should not be viewed as the commencement of a pre-decided reason to raise the policy rate.

The United States dollar index (DXY) reacted to this by sinking below 93.00. However, the US dollar index had no difficulty in canceling out its losses as it is currently at 93.13.

There was a mild reaction of the USDJPY pair towards the most recent Japan trade numbers. Recent data from Japan has shown that Machinery Orders have decreased by nearly 2%. Japan’s trade agency data shows that the exports have increased for five consecutive months by 37% but slightly below the average approximation of 39%.

The imports also rose by nearly 29%. This is a trade surplus for the country that exceeds 440 billion Japanese yen.

The state of emergency in Japan was followed by the government requiring restaurants and retailers to close early and its population to work from home. Moreover, this plea was voluntary, and there are weak legal enforcement measures in the country. 

On the bright side, current restrictions led to an increase in consumption that led to the gross domestic product (GDP) growing unexpectedly in Q2.

The Covid-19 effect

The greenback has remained undisturbed by Jerome Powell’s sentiments on the effect of the Covid-19 Delta variant on the economy of the United States. In contrast, the gains of the Japanese yen were lost as a result of the rapidly spreading Covid-19 Delta variant.

Japan’s economic growth is sluggish due to poor Covid-19 containment and inadequate consumption. The poor Covid-19 containment has forced Japan to issue three states of emergency. The extended outbreak of the pandemic has also led to an increase in unemployment rates in the country.

The vaccine administration in Japan is slow, and this has raised doubt given the increasing numbers of Covid-19 cases. Nearly a third of the country’s population is fully vaccinated. A chief economist for SMBC Nikko Securities based in Tokyo, Junichi Makino, has recently stated that a recovery will pick up pace sometime in the year as vaccine administration increases and the economy gradually returns to normal.

Technical outlook

USDJPY is currently at 109.69. The 20-EMA and 50 EMA have just intersected. This shows that there is likely to be a balance between the bulls and the bears in the coming hours. 

Daily USDJPY chart, showing the EMAs’ crossover, critical support, and resistance.

However, a bearish control looks more likely afterward, considering that the 20-EMA is headed downwards. The pair is likely to find support at 109.234. A rise of the dollar will likely encounter the first resistance at 110.509 and the second one at 110.743.

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