The USDJPY currency pair reached a new six-month high last week, almost getting to 141. Then there was a strong overbought of technical indicators, which triggered a corrective pullback. However, the correction did not last for a long time: already at 138.7 the "bulls" started to act actively. The fight for the important level of 140 is still going on with varying success, but the medium-term trend of the USDJPY is still upward.
Yesterday's decline of the dollar amid weak business activity statistics did not change the situation significantly. Higher yields on assets in American currency will continue contributing to liquidity flow from the yen anyway. Supporters of the Japanese currency can only hope for a quick decline in inflation and a related increase in real earnings, but in this area the progress is still quite modest.
As the Labor Ministry of Japan reported on Tuesday, real personal income fell by 3% in April compared with the same month last year. This is the 13th consecutive month of decline. Economists predicted a decline by only 2%. Japanese financial regulator Chairman Kazuo Ueda and other Bank of Japan officials want to see the real wage growth rate of 3% to change their ultra-soft monetary policy.
The decline in real earnings is already leading to a lower level of consumer activity. Households in Japan reduced spending in April by 4.4% at a time when a decline of 2.4% was forecasted. These figures clearly indicate that higher prices are disrupting domestic demand. A recovery in tourism and export volumes will partially compensate for the weakness of the Japanese economy, but only by further weakening of the yen.
Last week's correction helped the Stochastic and RSI indicators to move out of the overbought zone, opening the way for the USDJPY to continue its uptrend. As long as the prices do not fall below 137.9, the growth to the level of 140 remains the main scenario. In the future the update of the local highs with the rise to the level of 141 is not excluded.
The following trading strategy option can be suggested:
Buy USDJPY in a range of 138.7-139.3. Take profit – 140. Stop loss – 137.9.