USD/JPY: forecast for Aug 31-Sept 6
By Elizabeth Belugina
USD/JPY hit 116.15, the lowest level since the beginning of January, on Black Monday. Then as the market’s risk sentiment improved the pair returned to the previous support line of 2015 in the 121.50 area. Another positive factor for the US currency was the upward revision of America’s Q2 GDP growth.
As yen strengthened at the beginning of the past week, we got comments from Japanese officials that the move was too “rough”. Taking into account the risks from China, Japan’s monetary authorities will not want national currency to strengthen much further. As a result, they will likely step in with verbal interventions if the bears once again try to pull the pair to 116.00. In addition, there are rumors that Japan’s giant public pension fund (GPIF) is aggressively buying foreign assets to support USD/JPY.
Meanwhile, Japanese inflation data came out subdued. National core CPI was flat in July after rising by 0.2% in June. The more timely Tokyo CPI measure declined by 0.1% in August. It will be difficult for the Bank of Japan to achieve its 2% inflation target without further monetary stimulus. However, no such measures are expected within the next month.
Japanese core inflation, %
Next week traders will focus on the US economic releases and especially non-farm payrolls (NFP) due on Friday. In Japanese economic calendar, we see some less important releases. All in all, although the market’s sentiment may improve, the uncertainty about China and the US Federal Reserve’s policy will remain limiting USD/JPY on the upside.
On its way up the greenback will have to overcome resistance at 121.50, 122.25, 123.10 and 124.50. Support is located at 119.60 and 118.30/00.