USD/JPY trades with mild losses near 147.40, JPY still vulnerable

• USD/JPY declined to a low near 147.00 and then recovered to 147.40.
• The US reported strong mid-tier economic figures.
• Hawkish bets on the Fed decline, and markets foresee 35% odds of a hike in November or December.

In Thursday’s session, the USD/JPY saw losses, mainly driven by the JPY’s strength, which is trading strong against most of its rivals. In addition, the Greenback is also holding strong, with its DXY index jumping to its highest level since March 9, around 105.20. The upward movements were driven by solid economic activity figures, which showed that the US economy is not giving up.

The US Producer Price Index (PPI) exhibited a substantial MoM increase of 0.7%, reaching 1.6% (YoY) in August, which exceeded market expectations. On the other hand, Retail Sales saw a 0.6% (MoM) increase in the same month, significantly surpassing the anticipated 0.2% rise and exceeding the previous month's 0.6% growth.

On the labour market front, Jobless Claims for the second week of September experienced an uptick, reaching 220,000, slightly higher than the previous week's 217,000 but still below the anticipated figure of 225,000.

As a reaction, the US yields rose. The 10-year bond yield reached 4.29% and showed a 0.80% increase. The 2-year yield reached 5.01%, up by 0.76%, while the 5-year yield rose to 4.41% with similar increases.

However, the CME FedWatch tool indicates that investors foresee a lower likelihood of the Federal Reserve (Fed) opting for a hike in the remainder of 2023, with the odds of a 25 basis point (bps) hike slightly declining to 35%. For the next sessions, the market’s mood will potentially be cautious, awaiting the anticipated Fed decision next Wednesday.

On the JPY’s front, there are no fundamental reasons for the Yen to recover as soft Japanese data makes it likely the Bank of Japan will continue with its dovish stance. In line with that, during the Asian session, soft Japanese Machinery Orders figures from August reportedly fell to their lowest in three years. The BoJ has stated that as long as wage and inflation figures don’t match their forecast, a pivot won’t be considered, which leaves the Yen vulnerable.

USD/JPY Levels to watch 

Based on the daily chart, the USD/JPY shows indications of bullish exhaustion, leading to a neutral to bearish technical outlook.

With a flat slope above its midline, the Relative Strength Index (RSI) suggests a period of stability in positive territory. At the same time, the Moving Average Convergence (MACD) histogram lays out rising red bars. 

 Support levels: 146.50 (20-day SMA), 146.00, 145.50.

 Resistance levels:  147.50, 148.00, 148.50.

USD/JPY Daily Chart