Monthly Review of USD/JPY: Economic Shifts And Market Reactions Trust Company Trust Company
6 min readJun 24, 2024

In the last month, USD/JPY has fluctuated amid changes in the economic and policy landscapes in Japan and the United States. These changes led to an overall rise in the pair during the month.

Stablecoin prices can be influenced by various factors, with the market trend of the underlying fiat currency being a critical consideration. Our blog tracks and updates major currency price movements while delving into the policies and economic factors that propel them. Follow us on @GMOTrust to stay updated.

Overview of USD/JPY Changes

USD/JPY for the last 30 days. Source: TradingView

USD/JPY has had ups and downs in the past month for several reasons. These fluctuations are primarily due to changes in the outlook for monetary policy in Japan and the US.

The recent rise in USD/JPY has resulted from dollar strength and yen weakness. In the past month, the dollar has strengthened for several reasons. The first is better-than-expected US data. Employment figures for May came in much higher than expected, showing a still robust labor market.

Figures for April had missed forecasts significantly, increasing bets of a Fed rate cut in September. However, this might have been a one-time thing since the sector returned to massive growth in May. This led to a drop in rate cut expectations, strengthening the dollar.

Another reason for the dollar’s strength in the past month was the decline in the euro amid political uncertainty. Notably, the euro makes up a large part of the dollar index, so a significant decline benefits the dollar. Tensions in the Eurozone increased as investors feared a financial crisis in France due to a looming shift in government. This also increased safe-haven demand for the dollar.

Furthermore, policymakers at the FOMC policy meeting projected only one rate cut this year despite softer inflation figures. This strengthened the dollar and caused a rise in USD/JPY.

Meanwhile, the yen was pressured last month after a dovish Bank of Japan policy meeting. Investors had expected the central bank to start reducing its bond purchases, but this did not happen. Moreover, data from Japan has shown weak consumption, which complicates the outlook for rate hikes.

Reasons for the Recent Drop in USD/JPY

The recent drop in the USD/JPY pair was due to dollar weakness. Although the US released robust employment figures, the outlook for rate cuts soon changed when inflation data came in. Both consumer and wholesale price figures came in lower than expected, confirming a downtrend. This drop boosted expectations that the Fed would cut rates in September. Moreover, investors were more convinced of at least two rate cuts this year.

Other reports also indicated a slowdown in the economy, putting more pressure on the US central bank to start cutting rates. One such report was the US GDP, which revealed a significant decline in economic growth. A weaker dollar relieves the yen, allowing the pair to drop.

Policy and Economic Updates in the US and Japan

Last month, many economic and policy changes in Japan and the US impacted the price of the USD/JPY pair.

Recent US Economic Indicators

In the United States, the Fed maintained interest rates at 5.50%, keeping monetary policy unchanged. However, the message and forecasts during the meeting were unexpectedly hawkish. The central bank expects to cut interest rates only once this year, in December. Moreover, Powell noted that inflation declined, but the economy remained robust. This was a less dovish outlook than market expectations and supported the dollar.

Meanwhile, economic changes included the US GDP report, which revealed an expansion of 1.3% in Q1, a significant drop from the previous 3.4% increase. It clearly showed that economic activity decreased in the first quarter, which was bearish for the dollar.

After that came the US nonfarm payrolls report, which showed that jobs increased by 272,000 in May. This was a significant increase from the previous month’s 165,000. However, there were some signs of softness in the labor market since the unemployment rate increased from 3.9% to 4.0%. Still, the surge in employment boosted the dollar and pushed up USD/JPY.

After the employment report, the markets received inflation data. The monthly figure fell from 0.3% to 0.0%, while the annual figure fell from 3.4% to 3.3%. These were all bigger drops than economists had expected. Consequently, the dollar fell.

Policy Moves and Economic Data from Japan

In Japan, the Bank of Japan kept interest rates unchanged at 0.10% during its policy meeting. However, investors focused on the fact that the central bank said it would keep buying bonds at the current pace. This was a dovish outcome because markets had expected a reduction. Therefore, it led to a decline in the yen.

On the economic front, Japan released inflation data, which showed a decline in the national core CPI from 2.6% to 2.2%. Lower inflation discourages the BoJ from hiking interest rates, which weighs on the yen.

Furthermore, the GDP report showed a significant drop in economic activity from 0.1% to -0.5 %. This gives the Bank of Japan another reason to postpone rate hikes.

Trends for the Coming Months

Investors will continue to watch economic and policy changes in Japan and the US in the coming months. Furthermore, the policy outlooks for the Bank of Japan and the Federal Reserve will determine the direction of the USD/JPY pair.

According to the Reuters report, Fed Funds futures implied there is a 67% chance that the Fed will cut rates in September. Meanwhile, economists expect the Bank of Japan to hike rates at the July meeting. If expectations for a Fed cut go up in the coming months, the dollar will drop, pushing the USD/JPY pair lower. At the same time, if expectations for a July BoJ hike increase, the yen will strengthen, and USD/JPY will drop. The opposite is also true.

USD/JPY Technical Review

USD/JPY for the last 30 days. Source: TradingView

On the technical side, USD/JPY is on a strong bullish trend. However, it is approaching major resistance at the 160.04 level. This line in the sand for the Bank of Japan triggered interventions this year. Therefore, there is strong resistance here that could push the price lower.

Bears might take over if the level holds firm, especially since price action shows that bulls are exhausted. However, the price must break below the 22-SMA and the bullish trendline to reverse the trend. If this happens, bears will get a chance to revisit support levels like 155.00 and 147.54.

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