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USD/JPY retreats from 38-year peak but downside potential seems limited

USD/JPY retreats from 38-year peak but downside potential seems limited | 27 June 2024

27 June 2024, USD/JPY

Event to watch out for today:

15:30 GMT+3. USD - GDP volume change

USDJPY:

The Dollar-Yen pair is declining during the Asian session on Thursday and losing some of the previous day's strong gains to reach the 160.85-160.90 area, which is the highest level since 1986. Spot prices are currently trading around the mid 160.00 area, although any meaningful corrective decline seems unlikely amid the large interest rate differential between the US and Japan.

The Bank of Japan (BoJ) has been reluctant to provide a detailed plan to reduce bond purchases. In contrast, recent hawkish comments from Federal Reserve (Fed) officials suggest that the U.S. central bank is in no hurry to start a rate-cutting cycle amid a still-resilient economy. This, and the underlying bullish tone in global equity markets, could continue to undermine the safe-haven Japanese Yen (JPY) and act as a tailwind for the USD/JPY pair, justifying some caution for aggressive bearish traders.

Investors, meanwhile, remain on guard amid speculation that Japanese authorities may intervene in the markets to support the national currency. Japan's Deputy Finance Minister Masato Kanda confirmed that the government is ready to take appropriate measures if excessive currency fluctuations have a negative impact on the national economy. In addition, good data on retail sales in Japan, which grew by 3% year-on-year in May, provided some support to the Japanese yen and contributed to profit taking on the USD/JPY pair.

Trading recommendation: Trade mainly with Buy orders from the current price level.

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David Johnson
Analyst of «FreshForex» company
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