Japanese yen can’t buy any love

The Japanese yen is down sharply for a second straight day. USD/JPY is trading at 144.87 in the North American session, up 1.45% on the day. Later today, Japan releases Final GDP, which is expected to come in at 0.7%, up from the initial GDP estimate of 0.5%.

Yen approaching 145

It’s been a disastrous week so far for the yen, as USD/JPY has jumped 3.31% and is quickly closing in on the 145 line, which hasn’t been breached in 24 years. It was just a few days ago that there was concern about the yen breaking 140, and here we are at the lofty 145 level. Predictably, Tokyo has responded with warnings about the yen’s performance, with the Chief Cabinet Secretary saying that officials are ready to take action if necessary and the situation is being carefully watched. We’ve heard this rhetoric before, but the lip service hasn’t been backed by any action. The 145 line is not a magic line in the sand that will trigger intervention by the Ministry of Finance, but if officials elect to stay on the sideline, we can expect the yen to continue to depreciate in the current economic climate.

Japan’s Household Spending, released on Tuesday, was a disappointment. The reading of 3.4% for July dipped from 3.5% in June and missed the 4.2% estimate. Domestic activity has improved somewhat in the post-Covid era but the economy remains weak and households continue to be hit with high prices for energy and food. Inflation is around 3%, much lower than in other major economies and not enough to force the BoJ to tighten policy. With the BoJ enforcing a cap on JGB yields and the US/Japan rate differential widening, there is more room for the yen’s slide to continue.

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USD/JPY Technical

• USD/JPY has support at 142.75 and 141.48
• USD/JPY is testing resistance at 144.70. Above, there is resistance at 146.65

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