USDJPY Slumps on Weak US Factory Reading

The Bank of Japan will certainly be relieved by price action in FX markets this week. USDJPY has fallen around almost 1.5% on the week so far with price breaking back below the 156.18 level and now fast approaching a test of the bull channel lows.  A weaker-than-forecast US ISM manufacturing print yesterday has hit USD sentiment hard, particularly the drop in the inflation component which is raising hopes that inflationary pressures are again subsiding on the back of Friday’s softer PCE data. Pricing for a cut in September has now jumped to around 60% from 50% at the start of the week.

Hawkish BOJ & Japanese Govt Commentary

Hawkish guidance from the BOJ continues to play a part also. There has been chatter this week regarding the BOJ’s alleged intention to scale back bond purchases as early as this month’s meeting. Recent commentary from Japanese officials has remained on the hawkish side with both Fin Min Suzuki and BOJ deputy governor Himino commenting this week on the need for continued vigilance, asserting the willingness to act as necessary to protect the economy for the negative impact of a weaker JPY.

US Jobs On Watch

Looking ahead this week, focus ill be firmly on incoming US jobs data with the headline NFP readings due on Friday. If we see further US data weakness this should boost September rate-cut chances and exacerbate current USD selling, pulling USDJPY lower near-term.

Technical Views

USDJPY

The sell off in USDJPY has seen the market breaking back below 156.18, now fast approaching a test of the bull channel lows. With momentum studies weakening, risks of a deeper move are growing, turning focus to 151.81 as a longer-run bear target. 

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