Dollar/yen slipped close to the 104 line during the week, but managed to recover on Friday, July 31. On the fundamental front, Japan’s GDP is expected to fall for a third successive quarter, with a forecast of -0.7%. Analysts are braced for poor consumer spending data for June. Average Cash Earnings are forecast to drop by 3.0% and Household Spending is projected to decline by 7.8%.

USD/JPY fundamental mover

BoJ Core CPI, which is the Bank of Japan’s preferred inflation gauge, rose to 0.1%, up from 0.0%. Retail sales declined by 1.2%, after suffering two double-digit declines. There was good news on the manufacturing front, as Industrial Production rose 2.7%, after three successive declines.

In the US, it was mostly a disappointing week. Durable goods data softened in June. The headline came in at 7.3%, down from 15.8%. The core reading fell from 4.0% to 3.3%. The Fed maintained the benchmark rate at zero and had a dovish position for the markets, as expected. Policymakers reiterated their commitment to “act as appropriate to support the economy”, but did not announce any new policy measures.

The initial GDP read for Q2 was dismal. The economy contracted by 32.9%, close to the estimate of 34.5%. The week ended with UoM Consumer Sentiment falling to 72.5, down sharply from 78.1 beforehand.

USD/JPY Technical Analysis

• 109.73 (mentioned last week) is protecting the 110 level, which has psychological significance.
• 108.30 has provided resistance since early June.
• 107.22 is next.
• 106.05 is an immediate resistance line.
• 105.13 is providing support.
• 104.29 is next.
• 103.52 was last tested in early March.
• 102.27 is the final support line for now.

USD/JPY Daily Chart

USD/JPY Sentiment - I am bullish on USD/JPY

The yen pushed close to the 104 level last week, although it was unable to consolidate the gains. Still, the currency is showing strength after recently breaking below the key 106 level. With the US dollar in retreat mode, it could be a good week for the yen.