The Dollar/yen pair moved lower last week, erasing the gains made in the previous week. On the fundamental front, the focus will be on Japanese inflation indicators. We’ll take a look at BoJ Core CPI, which is believed to be the Bank of Japan’s preferred gauge of inflation.

Later in the week, Japan releases Tokyo Core CPI. In the US, this week’s highlight is the second estimate GDP for Q2. The initial reading showed a severe contraction of 32.9%. This figure is expected to be revised slightly lower to 32.5%.

USD/JPY fundamental mover

Japan’s economy slipped badly in Q2, as GDP came in at -7.8%. The estimate stood at 7.5%. This reflected the strict lockdown measures in April and May which paralyzed the economy. Manufacturing PMI accelerated for the third successive month, rising from 45.2 to 46.6. Still, any reading below 50 is in contraction territory.

Over in the US, the Philly Fed Manufacturing index slowed to 17.2, down from 24.1 beforehand. Unemployment claims surprised by climbing to 1.1 million, above the estimate of 930 thousand. The Federal Reserve minutes were dovish. Members stated concern about the continuing adverse impact of COVID-19 on the US economy.

The minutes also reiterated a call from Fed Chair Jerome Powell on the need for a fiscal package from Congress to boost the struggling economy. The week ended with good news from the manufacturing sector, as Manufacturing PMI improved to 53.6, its highest level since February 2019.

USD/JPY Technical Analysis

• 109.73 (mentioned last week) is protecting the 110 level, which has psychological significance.
• 108.52 has provided resistance since early June.
• 107.18 is next.
• 106.44 has switched to resistance after USD/JPY lost ground last week.
• 105.45 is the first line of support.
• 104.50 is next.
• 103.52 has held in support since mid-March.
• 102.27 is the final support level for now.

USD/JPY Daily Chart

I remain neutral on USD/JPY

The US dollar has been struggling, but the yen hasn’t been able to make much progress below the 106 level. With the Japanese economy limping along, there isn’t much to attract investors to the yen.