Fundamental analysis of USD/JPY

The USD/JPY has made a noticeable movement and is steadily rising within a strong positive trend, remaining below the psychological level of 145.000. 

 One of the main drivers of the USD/JPY is the sharp divergence in monetary policy between the banks, between the Bank of Japan (BoJ) and the Federal Reserve (Fed). The Bank of Japan (BoJ) is pursuing a policy of negative interest rates, and its governor Kazuo Ueda recently stressed that he has no plans to change its extremely soft policy in the near future. The Fed, by contrast, is following a different trajectory. Fed Chairman Jerome Powell has said that two more rate hikes are likely later this year.  However, Japanese authorities can intervene to support a weaker yen, which seems to keep traders from being too weak against the yen, with Japanese Finance Minister Shunichi Suzuki saying that he would take appropriate measures to prevent a devaluation of the yen. In the past these measures have included buying the yen, which has contributed to the strengthening of the currency.  Market participants also seem to be worried about US macro data, including ISM manufacturing PMI and FOMC minutes. 

 The Japanese economy itself is showing positive signs amid concerns over exchange rate volatility. A central bank survey showed that improved business conditions associated with the easing of supply restrictions and the removal of pandemic-related restrictions led to an increase in production and consumption at factories in the second quarter. The U.S. economy is also showing resilience, with strong job growth contributing to labor market tightness that is boosting consumption of services. However, mixed economic data, including low inflation and slowing consumer spending, put pressure on the U.S. dollar. 

Differences in monetary policy between Japan and the US, possible Japanese government intervention, upcoming economic data releases and FOMC meeting minutes are important factors for investors. Fundamental analysis shows that the path of least resistance for USD/JPY is upward. 

Technical analysis and scenarios:

The Bollinger Bands are pointing in an upward direction with a narrowing price range and the price is in the upper range of the indicator, signaling a potential continuation of the bullish trend.

Main scenario (BUY)

Recommended entry level: 145.000.

Take Profit: 146.000.

Stop loss: 144.500.

Alternative scenario (SELL)

Recommended entry level: 144.000.

Take profit: 143.000.

Stop loss: 144.500.