Fundamental analysis of USD/JPY

The USD/JPY currency pair experienced a turbulent move, with volatility largely driven by comments from Fed Chairman Jerome Powell at the 4th Financial Stability Conference.The main catalyst was Chairman Powell's statement that most Fed policymakers expect at least two rate hikes before the end of the year. But he also expressed concern about potential tensions in the banking sector which could help push USD/JPY to all-time highs by further tightening lending conditions.

 In the Japanese market the yen gained some support thanks to positive economic data out of Japan. June consumer confidence index came in at 36.2 and May retail sales rose 5.7% y/y, exceeding expectations. However, Bank of Japan Governor Kazuo Ueda's remarks were relatively restrained. He stressed the need to maintain inflation and wage growth before cutting monetary policy, suggesting that there are still ways to reach the 2% inflation target. This contrasts with Powell's more hawkish stance, which points to the different paths that the two central banks are currently seeking. The strengthening of the US dollar against the yen has raised concerns among Japanese officials. Historically, the Ministry of Finance and the Bank of Japan have intervened when the U.S. dollar has reached above 145 yen. But current market conditions, including a rising stock market, falling energy prices and more overseas travel, could raise the threshold. 

 Another layer of difficulty is added by U.S. Treasury bond yields, which consolidated yesterday's losses at 3.48% for the 10-year and 4.75% for the 2-year, also providing some support for USD/JPY buyers.  Going forward, USD/JPY traders will focus on the revised US 1Q2023 Gross Domestic Product (GDP) and additional US employment and economic activity data, including May's new jobless claims and Personal Consumption Expenditure Allowance (PCE) claims. Particularly important is the PCE, which is expected to exceed the central bank's annual target of 2%, rising to 4.7%. 

 USD/JPY was heavily influenced by central bank discussions on possible rate hikes and Powell's comments tilted the balance in favor of the dollar. The contrasting monetary policies of the Fed and Bank of Japan, along with the release of key economic data, will continue to determine the trajectory of the currency pair.

Technical analysis and scenarios:

The pair is trading within the upper range of the Bollinger Bands, indicating bullish sentiment, but the price is declining in this upper range, which could indicate a possible consolidation or pullback.

Main scenario (BUY)

Recommended entry level: 144.600.

Take Profit: 145.500.

Stop loss: 144,000.

Alternative scenario (SELL)

Recommended entry level: 143.000.

Take Profit: 142.000.

Stop Loss: 143.500.