CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved.

Japanese yen breakout looks premature as USD/JPY eyes FOMC minutes, PCE data next

Japanese yen has been gaining against US dollar; USD/JPY breakout lower may accelerate on fading Fed tightening bets but, FOMC minutes and PCE data could reignite the US dollar next.

Will USD/JPY weakness prevail?

Lately, the Japanese yen has finally been finding some footing against the US dollar. Over the past two weeks, USD/JPY declined by over two percent. That was the worst two-week period since June 2020. This has been in stark contrast with general Yen weakness going back all the way to the beginning of 2021. Is this near-term noise, or is more smooth sailing ahead for the Japanese currency?

The yen’s strength is not unprecedented. In fact, it has been occurring amidst an increasingly favorable environment for the anti-risk currency. For starters, JPY has been receiving a bid amid rising market volatility. This has been leaving it in a very competitive position against the sentiment-linked Australian, New Zealand and Canadian sdollars.

Against the US dollar, it is a different fundamental story. Both the US dollar and Japanese yen exhibit anti-risk dynamics. The more important focus for USD/JPY is thus on relative monetary policy between the Federal Reserve and the Bank of Japan. The latter has not been doing much in terms of shifting its dovish view, but the markets are starting to reprice what the former could do in the future.

In the chart below, the markets have been materially pulling back 2023 Federal Reserve tightening expectations. This has been occurring amidst a deterioration in longer-term inflation expectations. Meanwhile, it seems we are starting to see the very early stages of Fed pivot expectations for this year. Odds of a September 50-basis point rate hike have been fading amid rising growth concerns.

If this trend continues, it is reasonable to expect more USD/JPY weakness. However, key data this week could offer the US Dollar strength. These include the FOMC meeting minutes on Wednesday and PCE figures on Friday. The latter is the central bank’s preferred gauge of inflation, with the core reading expected at 4.9% y/y in April from 5.2% prior. The data is for the same period when headline inflation surprised higher. A much softer outcome in the PCE data could amplify USD/JPY’s descent.


USD/JPY fundamental drivers – daily chart

USD/JPY technical analysis

With that in mind, traders ought to treat USD/JPY’s recent breakout with a grain of salt. The pair just barely closed under the April 27th low at 126.952. Moreover, the 50-day Simple Moving Average remains in play and can reorient the pair to the upside. Such an outcome would place the focus on 131.256 resistance. Otherwise, confirming a breakout under the SMA could spell further trouble for USD/JPY. That would place the focus on the former 125.108 – 123.862 resistance zone.

Daily chart


This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

Start trading forex today

Trade the largest and most volatile financial market in the world.

  • Spreads start at just 0.6 points on EUR/USD
  • Analyse market movements with our essential selection of charts
  • Speculate from a range of platforms, including on mobile

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired


See more forex live prices

liveprices.javascriptrequired


See more shares live prices

liveprices.javascriptrequired


See more indices live prices

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.