The USDJPY currency pair started a corrective movement after a significant strengthening of the dollar.
Weak demand and minimum prices for natural gas have a positive effect on inflation reduction. Reduction of price pressure will occur in Japan and all over the world. This effect will force central banks to pause and start lowering interest rates. In the long-term, the dollar will be weakening, like it was in 2020. At the moment, the news could also be positive in the short term, as investors will be changing their models for inflation and interest rate forecasts.
Last month, liquefied natural gas (LNG) imports into Japan fell to their lowest level in more than 20 years. According to ship tracking data and government reports, the LNG supply to Japan dropped to about 4 million tons in May, which is the lowest level since 2002. On an annual basis, this means a decrease by about 30%. Gas reserves in Japanese storage facilities are so high that importers offered some of last month's shipments for sale.
The energy crisis in Japan last year caused a grid overload, the risk of power outages, and rising utilities rates. After that, the country introduced an energy-saving policy. In recent months, lower LNG costs have helped to reduce fuel expenses for the country's power plants and to reduce the rise in energy prices.
The statistics in Europe also hints at a future easing of monetary policy.
Core inflation in the eurozone declined more than expected. Nevertheless, the president of the European Central Bank (ECB) Christine Lagarde said that at the moment there is no reason to confirm that prices have peaked. She promised further increases in interest rates.
Consumer prices, excluding fuel and food, rose by 5.3% in May compared with the previous year. In April, the growth rate was 5.6%. On the base of Bloomberg economists' survey, the data are below the average level of 5.5%.
According to the technical analysis, the USDJPY currency pair is forming a downtrend. It is believed that it will be continued for some time. The lower boundary of the global uptrend will be the main downside target. Also, the decrease to it will mean the testing of the previous peaks in the currency pair. Thus, the price of 137.8 will be the downside target. Stop-loss can be set on the change of trend and the growth of quotes up to the round level of 140.0.
The USDJPY currency pair decline:
Take profit – 137.8
Stop-loss – 140.0
This content is for informational purposes only and is not intended to be investing advice.
