USD/JPY sees retreat amid US Dollar weakness

USD/JPY has retreated from its peak this week, settling at 146.82. The yen gained some strength as the US dollar weakened following July's lacklustre US Producer Price Index (PPI) data. This report bolstered market expectations for a potential 50 basis point cut by the Federal Reserve at its upcoming September meeting.

The focus now shifts to the July US Consumer Price Index (CPI), due for release today. Market participants predict sharp reactions if the data is weaker than expected, reinforcing the case for further rate cuts.

Domestically, the Tankan report indicated a decline in business confidence in Japan in August, likely influenced by reduced demand from China and other external pressures. This decrease to 10 points from 11 reflects Japan's broader economic challenges.

Additionally, the Bank of Japan’s (BoJ) monetary policy outlook remains a critical focal point amid recent stock market volatility and decreased carry trade activities involving the yen. While a former BoJ official expressed doubts about the possibility of an interest rate increase this year due to financial market impacts, the broader market remains cautiously optimistic about future monetary tightening.

Technical Analysis of USD/JPY

The USD/JPY forecast shows that the pair is currently consolidating around the 147.00 level. We anticipate a corrective decline to 145.00, followed by a potential rebound towards 152.22. A breach of this level could extend the upward trend towards 159.52. This bullish outlook is technically supported by the MACD indicator, which, although its signal line is below zero, suggests downward momentum.

On the hourly chart, USD/JPY continues its corrective phase with a target set at 145.80. The pair is currently stabilising around 146.55, setting the stage for a potential decline to 145.60, and possibly extending the correction to 145.00. This scenario is corroborated by the Stochastic oscillator, with its signal line poised to move from below the 80 level to the 20 level, suggesting potential further declines.