USD/JPY and 144 Hinged on US ADP Nonfarm Numbers

Highlights

• It is a busy morning for the USD/JPY, with the Bank of Japan in focus.
• Today, the Bank of Japan releases the monetary policy meeting minutes from the pre-tweak June meeting ahead of US labor market numbers.
• The near-term technical indicators remained bullish, signaling a return to 144.

On Tuesday, the USD/JPY gained 0.82% to wrap up the day at 143.330. Bets of a US soft landing extended the winning streak to three sessions. The US ISM Manufacturing PMI suggested a steadying across the US manufacturing sector in July.

This morning, there are no US economic indicators from Japan for investors to consider. The lack of economic indicators left investors to run through the Bank of Japan minutes ahead of the US session. However, the minutes were from the June 15 meeting, which limited the impact on the USD/JPY pairing.

The Bank of Japan tweaked from ultra-loose on July 27 by loosening the Yield Curve Control Policy. Notably, the tweak sent the USD/JPY crashing to 138.059 before the bearish trend reversal.

The June Minutes

According to the June BoJ meeting minutes,

• Market sentiment improved because of solid corporate earnings.
• However, uncertainties remained over monetary policy, the US financial sector, and a slowdown in the global economy.
• The pace of the overseas economic recovery slowed, with a further slowdown expected after monetary policy tightening take effect.
• Members took the view that economic activity in Japan picked up, despite the effects of factors, including higher commodity prices.
• The Japanese economy was likely to recover moderately toward the mid-2023 fiscal year.
• Many members recognized that recent inflation had been higher than forecast in April 2023, with prices for services accelerating because of domestic demand.
• However, import prices should support a CPI deceleration toward mid-fiscal 2023.
• Members agreed that long-term interest rates had been at around 0%, with no need to revise the conduct of the yield curve control at the meeting.
• Considering economic and financial market uncertainties, the Bank would patiently continue with monetary easing while responding to developments in economic activity and prices.

The US Session

It is a busy US session, with ADP nonfarm employment numbers for July in focus. While the latest US CPI Report eased bets on a September Fed rate hike, tighter labor market conditions would support a further pickup in wage growth and drive demand-fueled inflation. Economists forecast a 188k increase. In June, the ADP reported a 497 surge.

The US labor market forms part of the Fed’s dual mandate. The FOMC Committee forecasts the longer-run normal rate of unemployment to be 4.1%. The US unemployment rate fell from 3.7% to 3.6% in June. Tighter labor market conditions would lead to higher wage growth levels and a demand-driven inflation pickup. Higher borrowing costs would curb hiring and wage growth.

USD/JPY Price Action

Daily Chart

The Daily Chart showed the USD/JPY hovered above the upper level of the 141.2 – 141.9 resistance band. Tuesday’s bullish session supported a breakout from the resistance band and a return to 143. The USD/JPY remained above 50-day (140.461) and 200-day (136.970) EMAs, sending bullish near and longer-term price signals.

Notably, the 50-day EMA pulled away from the 200-day EMA, supporting further gains.

Looking at the 14-Daily RSI, the 58.85 reading signals a bullish outlook, supporting a run at the 144.3 – 145.0 resistance band. However, a USD/JPY fall through the 141.9 – 141.2 resistance band would give the bears a run at the 50-day EMA (140.461).

4-Hourly Chart

Looking at the 4-Hourly Chart, the USD/JPY faces strong resistance at 143. However, the USD/JPY sits above the 141.9 – 141.3 resistance band and the 50-day (141.285) and 200-day (140.873) EMAs, sending bullish near and longer-term price signals. Significantly, the 50-day EMA pulled away from the 200-day EMA, affirming the near-term bullish trend.

However, a USD/JPY fall through the 141.9 – 141.2 resistance band would bring the EMAs into play. A fall through the 50-day EMA (141.285) would signal a return to sub-140.

The 14-4H RSI reading of 62.68 sends bullish signals, with buying pressure outweighing selling pressure. Notably, the RSI aligns with the EMAs and supports a run at the 144.3 – 145.0 resistance band.