At the end of last week, the USDJPY currency pair updated the monthly high, but there was a downward reversal near the 146 level. The buyers of the dollar against the yen decided to take short-term profits, seeing no prerequisites for a more significant rise in the near future. On this background, USDJPY may return to the 142 level, where opening long positions would be more interesting.
On Monday, an extensive set of statistics on US business activity was published. While the ISM data were rather positive, the S&P Global report recorded the worst performance since the beginning of last year. Economists surveyed by Reuters consider the S&P Global results more trustworthy. ISM is likely overemphasizing massive purchases of imported goods by American companies prior to the imposition of duties. This factor will no longer support the PMI indices in the following months.
Meanwhile, market participants are still figuring out how long the Bank of Japan's pause in the interest rate hike cycle will last. The BOJ did not make any changes to its monetary policy during the past week, supplementing this decision with a worsened outlook for the country's economic growth. However, BOJ Governor Kazuo Ueda stressed his intention to continue increasing borrowing costs, even if the process takes more time than expected.
The current consensus forecast suggests keeping the key rate in Japan at 0.5% until the end of 2025. However, Morgan Stanley and Goldman Sachs advise monitoring the potential for monetary policy tightening in the fall, particularly if a trade tariff compromise with the US is reached. For this purpose, the yen should not weaken, otherwise the American authorities may accuse Japan of intentionally devaluing the national currency to support exporters.
If tomorrow's Fed meeting doesn't bring any hawkish surprises, USDJPY will have a good chance of reaching the 142 level by the end of the week.
Consider the following trading strategy:
Sell USDJPY at the current price. Take profit – 142. Stop loss – 145.
This content is for informational purposes only and is not intended to be investing advice.
