The USD/JPY pair has been experiencing some downside pressure as bulls opt to take profits off the table, amid fears of intervention by Japanese authorities. The positive Japanese Retail Sales data is supporting the Japanese Yen, exerting further pressure on the pair. Additionally, the diverging policy stance between the Bank of Japan (BoJ) and the Federal Reserve (Fed) could limit losses, especially ahead of key US macroeconomic data releases.
During the Asian session on Thursday, the USD/JPY pair drifted lower to the mid-160.00s, eroding some of the previous day’s gains that took it to its highest level since 1986. The significant interest rate differential between the US and Japan is acting as a barrier to any meaningful corrective decline. The BoJ’s reluctance to provide a detailed plan for reducing bond purchases contrasts with the recent hawkish comments from Fed officials, indicating a potential rate hike. This, combined with the positive sentiment in global equity markets, is undermining the safe-haven appeal of the JPY, supporting the USD/JPY pair.
There are speculations in the market regarding possible intervention by Japanese authorities to stabilize the domestic currency. Japan’s Vice Finance Minister has indicated readiness to take action in case of excessive currency fluctuations negatively impacting the economy. Additionally, the upbeat Retail Sales data from Japan, showing a 3% year-on-year growth in May, is providing support to the JPY and leading to profit-taking around the USD/JPY pair. Traders are now focusing on upcoming US economic data releases, including the final Q1 GDP print, Durable Goods Orders, Initial Weekly Jobless Claims, and Pending Home Sales, which could influence the USD and impact the USD/JPY pair.
Investors are closely watching the US Treasury bond yields and economic indicators ahead of the Tokyo Core CPI release on Friday. The US Personal Consumption Expenditures (PCE) Price Index, considered the Fed’s preferred inflation gauge, will particularly be important in providing a fresh impetus to the currency pair. The key levels to watch include the 160.00 psychological mark as initial support, followed by the 159.75 resistance turned support level. A breach below could lead to further decline towards the 159.00 mark. On the upside, the multi-decade high near 160.85-160.90 region could act as an immediate barrier, with a break above 161.00 potentially triggering more bullish momentum.
