USD/JPY plummets to fresh multi-week low, closer to mid-140.00s amid broad-based USD weakness
- USD/JPY drifts lower for the fourth straight day and dives to over a three-week low on Tuesday.
- The USD selling remains unabated and turns out to be a key factor weighing heavily on the major.
- The Fed-BoJ policy divergence fails to lend support as the focus remains on Wednesday's US CPI.
The USD/JPY pair prolongs its recent sharp retracement slide from the YTD peak - levels just above the 145.00 mark touched last week - and remains under some selling pressure for the fourth successive day on Tuesday. The downward trajectory drags spot prices to over a three-week low, closer to mid-140.00s during the Asian session and is sponsored by broad-based US Dollar (USD) weakness.
In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, drops to a two-month low in the wake of speculations that the Federal Reserve (Fed) is nearing the end of its policy tightening cycle. The market participants now seem convinced that the US central bank will soften its hawkish stance after the expected rate hike in July. The bets were lifted by the latest US monthly jobs report released on Friday, which showed that the economy added the fewest jobs in 2-1/2 years, signalling that the labour market is cooling.
Adding to this, the New York Fed's monthly survey revealed on Monday that the one-year consumer inflation expectation dropped to the lowest level since April 2021, to 3.8% in June from 4.1% in the previous month. This overshadows the overnight hawkish remarks by Fed officials and leads to a further decline in the US Treasury bond yields, which, in turn, is seen undermining the Greenback. The Japanese Yen (JPY), on the other hand, draws support from the recent sharp rise in Japan's benchmark 10-year government bond yield to a 10-week high.
The aforementioned factors contribute to the offered tone surrounding the USD/JPY pair, though a more dovish stance adopted by the Bank of Japan (BoJ) might cap gains for the JPY and help limit losses. In fact, the BoJ's negative interest-rate policy is expected to remain in place at least until next year. Furthermore, BoJ Deputy Governor Shinichi Uchida said last Friday that the central bank will maintain its yield curve control (YCC) policy from the perspective of sustaining ultra-loose monetary conditions, warranting some caution for aggressive traders.
Investors might also prefer to move to the sidelines ahead of Wednesday's release of the latest US consumer inflation figures. The crucial US CPI report will play a key role in influencing the Fed's near-term policy outlook, which, in turn, should drive the USD demand and provide some meaningful impetus to the USD/JPY pair. In the meantime, traders on Tuesday will take cues from the US bond yields and the USD price dynamics to grab short-term opportunities in the absence of any relevant market-moving economic releases from the US.
Technical levels to watch