Japanese yen stops US dollar rally

The Japanese yen has reversed directions on Thursday and posted gains. Currently, USD/JPY is trading at 111.48, down 0.41% on the day.

It has been a nasty slide for the yen, which has reeled off six successive losing sessions and dropped about 2 percent during that span. On Wednesday, USD/JPY punched above the 112 line for the first time since mid-February. The US dollar has retreated slightly on Thursday, but there seems to be plenty of room for the greenback to continue its upswing.

The yen didn’t get any help from weak Japanese data on Thursday. Retail Sales declined by 3.2% in August (YoY), after a 2.4% gain in July. Industrial Production also fell by 3.2% in August (MoM). Covid health restrictions have dampened retail sales, while supply-chain problems have caused semiconductor shortages and hampered industrial production.

These and plenty more economic challenges face the new Japanese Prime Minister, Fumio Kishida. The PM, who faces an election this fall, has said he will increase fiscal stimulus in order to boost Japan’s sagging economy.

Japan will release the Tankan indices later today. The Manufacturing index came in at +13 for Q2, and another double-digit gain could see the yen pick up further gains.

Powell admits inflation not so transient

The sharp decline in the yen and other major currencies this week can be attributed to heightened concerns about inflation, especially after Fed Chair Powell admitted that higher inflation will not cool off as fast as the Fed had expected. St. Louis Fed President Bullard said that the Fed may need to hike in 2022 to keep inflation at bay, while Philadelphia Fed President Harkin said he would support tapering as early as November. The Fed is under increasing pressure to tighten policy, which could mean plenty of tailwinds for the US dollar in the coming weeks.

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USD/JPY Technical

USD/JPY has been breaking above resistance lines as the pair has posted sharp gains this week:

• 111.31 is a weak support line. Below, there is support at 109.64
•  There are resistance lines at 111.89 and 112.98

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