On August 1, 2023, the USD/JPY pair continued to consolidate its recent strong gains, hovering just below a three-week high reached earlier. The Bank of Japan's unscheduled bond-buying operation, in which it purchased ¥300 billion worth of Japanese government bonds, aimed to keep yields pinned down. This move was made to counter the surge in the benchmark 10-year JGB yield to a nine-year high following the BoJ's decision to be more flexible in its Yield Curve Control (YCC) policy. The market sentiment was further boosted by a generally positive risk tone, which acted as a tailwind for the USD/JPY pair.
The US Dollar (USD) maintained its strength and stayed near its highest level since July 10, supported by increasing speculations of further interest rate hikes by the Federal Reserve (Fed). This optimism was fueled by the recent upbeat US GDP report, indicating a resilient economy, and Fed Chair Jerome Powell's remarks that the economy needs to slow and the labor market to weaken for inflation to return to the 2% target.
Despite the prevailing bullish sentiment, signs of receding underlying price pressures in the US could potentially lead the Fed to adopt a less hawkish stance. The PCE Price Index, excluding food and energy components, saw its smallest increase since September 2021, indicating some moderation in inflationary pressures. If these trends persist, it may prompt the Fed to slow down its rate-hiking cycle, which could put a cap on the strength of the USD and the USD/JPY pair.
Forex and crypto traders are closely monitoring the USD/JPY pair as it trades around the 142.35-142.40 region. The currency pair's current consolidation phase follows a solid bounce from the 138.00 neighborhood, indicating potential opportunities for traders to assess their positions. Market participants are cautious in their approach and are awaiting fresh impetus from this week's important US macroeconomic data releases, especially the closely-watched monthly employment report, or the NFP report, scheduled for Friday.
In the Forex market, technical analysis plays a significant role for traders. Key levels to watch for the USD/JPY pair include resistance levels at 142.7, 143.1, and 143.9, while support levels can be found at 140.69, 139.89, and 139.09. The prevailing trends, including the daily simple moving averages (SMA), suggest a bullish bias. However, traders should exercise caution due to potential market reactions to upcoming macroeconomic data releases that could influence the USD/JPY's direction. As the Forex market is highly sensitive to economic data and central bank policies, market participants need to be vigilant and adaptable in their trading strategies during this period of consolidation and uncertainty for the USD/JPY pair.