USD/JPY Struggles Amid Cautious Market Sentiment and Mixed Data

Posted Wednesday, May 31, 2023 by
Arslan Butt • 2 min read

The USD/JPY pair is facing difficulties reflecting the slightly downbeat sentiment in the market and is hesitant to validate the comments made by Bank of Japan (BoJ) Governor Kazuo Ueda, creating a relatively uneventful Wednesday morning in Europe. Currently, the Yen pair is trading around 139.75, pausing its two-day decline from the highest levels seen since November 2022.

The S&P500 Futures are displaying indecisiveness, showing a slight bearish tone around 4,220, following a mixed closing on Wall Street. Concurrently, US Treasury bond yields remain low. The US Dollar Index (DXY) has gained some momentum near 104.25, after ending a six-day uptrend near its highest levels in 10 weeks.

Earlier today, BoJ Governor Kazuo Ueda addressed concerns about inflation in the country and reiterated the central bank’s hawkish stance. However, Ueda also emphasized the importance of distinguishing between inflation caused by demand or supply when formulating monetary policy. Japanese data for April were also mixed, with year-on-year improvement in Industrial Production but a decline on a monthly basis, and substantial growth in Large Retailer Sales.

Meanwhile, mixed US data and fears of an economic slowdown, supported by comments from Richmond Fed President Thomas Barkin, are contributing to the cautious market sentiment and weighing on USD/JPY prices. Additionally, anxiety surrounding key data and events is evident, as US Republicans indicate a readiness to vote against the agreement to extend the debt ceiling. Furthermore, hawkish Federal Reserve expectations and concerns about economic slowdown in the event of a US debt default are also influencing market sentiment and the USD/JPY price.

Nevertheless, the DXY is benefiting from the market’s optimism that US policymakers will find a way to avoid default and enable the Federal Reserve to maintain higher interest rates for an extended period.

Moving forward, the House vote on the US debt ceiling agreement will be crucial in determining the immediate direction. Additionally, it is important to monitor the US JOLTS Job Openings for April, expected at 9.375 million compared to the previous 9.59 million, as well as the Chicago Purchasing Managers’ Index for May, which is likely to decline to 47.0 from 48.6.

From a technical perspective, if the USD/JPY pair closes below the previous support line from the past three weeks, which now acts as immediate resistance near 140.80, it would indicate a bearish direction towards the 10-day moving average support at 139.40.

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