Yen Rate Prepares for Fresh Rally Amid Dollar Strength
The USD/JPY pair is gearing up for a fresh rally, underpinned by a resilient Yen rate and consistent labour growth in August. Despite the Federal Reserve’s (Fed) decision to raise interest rates, the US Dollar remains steady, providing support to the USD/JPY.
Quiet Market Mood Amid Extended US Weekend
As the market starts the week amid an extended Labor Day weekend in the US, the mood has been largely quiet. The US Dollar Index (DXY) has just reached a slight correction. However, the anticipation for the upcoming ISM Services PMI report for August has kept investors on their toes. The ISM analysts will be publishing a report this Wednesday.
European stocks initially provided some support to the EUR/USD, but the gains were short-lived. Negative data from Europe, including the Sentix Investor Confidence and Germany’s trade surplus, contributed to the Euro’s weakness. This environment has further solidified the Yen to Dollars pair.
Consolidation Break Looms for Yen/USD Rate
USD/JPY has been consolidating within a tight range for three weeks, signalling an impending breakout. Supported by the 20-day Exponential Moving Average (EMA) and the 50-EMA, the pair maintains a bullish short-term trend. Resistance is marked around the October 2022 high of approximately 152.00.
Divergent consumer data from Japan and the United States drive the USD/JPY rally. Japanese household spending has declined significantly, while US personal consumption expenditure remains robust. This data discrepancy reinforces the monetary policy differences between the Federal Reserve and the Bank of Japan, supporting USD/JPY’s upward trend.
Divergent Data Drives USD/JPY Rally
Despite benefiting from a weaker yen coin in the export sector, Japan’s broader economy has yet to reflect these gains. Inflation is high, real wages are declining, and household spending remains subdued. Until these factors change, the Bank of Japan will unlikely shift its current policies, including yield control and negative interest rates.
The USD/JPY’s near-term direction is closely tied to the US economic outlook. While some US data has fallen short of expectations, it remains relatively strong compared to other developed economies. As a result, USD/JPY’s uptrend appears stable, with opportunities for long positions above 144.80 and resistance near 146.50.
Key Events to Monitor for Best Yen Exchange Rate
In the short term, keep a close watch on the upcoming US ISM non-manufacturing report, particularly the figures related to prices paid and employment. Given the importance of the services sector in the US economy, this report will be crucial for the Yen rate. Additionally, the potential for Bank of Japan intervention remains limited unless substantial changes occur in yield differentials between Japan and the US.
