The Japanese yen has reversed directions on Friday and is slightly lower. Currently, USD/JPY is trading at 109.70, up 0.22% on the day.
Fed Chair Jerome Powell performed masterfully at this week’s FOMC meeting, and the markets took the Fed’s rather dovish message in stride. Powell stuck to his well-worn script that the surge in inflation is transitory, and offered the markets a bone by stating that a taper in September was a possibility. However, Powell qualified a September move by stating that the Fed would first have to see a substantial improvement in employment, namely nonfarm payroll reports.
This gives the Fed some breathing room, with a couple of inflation and employment reports to be released before policymakers have to make a taper decision at the September policy meeting. The Fed has not ruled out a September taper, but could decide to wait until the fourth quarter (0r even later) before tightening policy.
This week’s key US events, which missed the consensus, reinforces the Fed’s dovish stance and insistence that the US economy, although clearly in recovery mode, still requires monetary stimulus. Advance GDP for the second quarter and unemployment claims both fell short of the forecast.
In Japan, today’s data was positive. Industrial Production for June (YoY) rebounded with a strong gain of 6.2%, above the forecast of 5.0% and up sharply from the May read of -6.5%. Retail Sales for May (MoM) posted a gain of 3.1%, bouncing back from the previous read of -0.4%.
IMF downgrades Japan
Covid remains a significant problem in Japan, as the country continues to struggle to contain the pandemic, The Olympic Games in Tokyo could aggravate the situation, with thousands of foreigners competing in the games. Earlier this week, the International Monetary Fund projected that Japan’s economy will expand 2.8% in 2021 (YoY), which is down from 3.3% in the April forecast. The report noted that Japan was facing a “further downside risk” to the economy due to the state of emergency in Tokyo.
- USD/JPY faces resistance at 111.07. Next, there is resistance at 111.59
- On the downside, the pair is testing support at 109.55. Below, we find support at 108.55