Markets
Fundamental analysis of USD/JPY

Fundamental analysis of USD/JPY

28.06.2023 13:30

Intradía

Fundamental

The USD/JPY currency pair moved slightly higher as strong economic data eased recession fears and increased risk appetite. The Japanese yen strengthened temporarily against the dollar, but continued to oscillate around its previous 7-month low. The Bank of Japan's (BoJ) insistence on keeping interest rates extremely low prompted a response from the Japanese government, which contributed to the yen's depreciation.

U.S. economic data is upbeat. Consumer confidence is at an almost 18-month high, but business spending is stagnant. This suggests a solid foundation for the U.S. economy. The market thinks the Fed will raise rates by 25 basis points next month.

This data further complicates the Fed's efforts to rein in inflation by reinforcing the notion of a "sectoral recession," in which various sectors of the economy suffer asynchronously. This suggests that the Fed should maintain a low profile. Fed Chairman Jerome Powell is expected to reiterate these tough recommendations at the European Central Bank forum in Sintra, Portugal. However, his statement is unlikely to have a major impact on Federal Open Market Committee (FOMC) prices.

On the Japanese side, there is speculation that the government might intervene to support the yen and limit losses. Japanese Finance Minister Shunichi Suzuki said that the currency market will be urgently monitored and appropriate measures will be taken if exchange rate fluctuations are deemed excessive. Masato Kanda, Japan's head of currency diplomacy, agreed. It should be noted that the Japanese Treasury's ability to intervene depends more on the exchange rate than on its value.

Thus, weak economic data from the United States increased risk appetite, which led to some movement in the USD/JPY pair. As market forecasts continue to predict further Fed rate hikes, Jerome Powell's remarks at the ECB forum are now attracting attention. Meanwhile, dovish sentiment at the Bank of Japan, combined with increased risk, is weakening the yen, although hinting at the possibility of Japanese authorities intervening in the market to support the currency. Chairman Powell's remarks will be important in determining direction, with firm confirmation of an imminent rate hike and hints of further rate hikes in 2023 necessary to maintain motivation.

Technical Analysis and Scenarios:

The Stochastic Oscillator is in overbought territory with a value of 78.3624. This may indicate that the pair is a bit overextended, but the trend remains upward.