The U.S. Dollar (USD) continues to rally against the Japanese Yen (JPY), marking its second consecutive trading day of gains, supported by a strong US employment report. Conversely, below-par economic data from Japan hints at a slower Yen decline.
Amid this rally, the USD cements its position as investors react positively to robust US employment numbers. However, disappointing economic results from Japan hint toward a potential downturn of the Yen. International traders are closely watching the seesawing dynamics between the two currencies.
While the Japanese economy’s dip in the initial quarter was less than expected, a silver lining can be noticed as Japanese companies keep up their investments. On the other hand, rising US Treasury yields suggest that the US Dollar Index is on a positive trajectory, reinforcing the strength of the US economy.
The Bank of Japan and The Federal Reserve are choosing differing monetary strategies to prop up their faltering economies.
Dollar ascends, Yen falters amid divergent economies
While Japan leans towards maintaining its interest rates, signs of weakening economic conditions suggest possible rate cuts from the Federal Reserve.
Data recently released by the US Bureau of Labor Statistics cited an increase in Nonfarm Payrolls for May to 272,000 and a surge in wage inflation from April’s 4.0% to 4.1% Year on Year (YoY) in May, surpassing market predictions.
In Japan, foreign reserves for May plummeted significantly to $1,231 billion from $1,279 billion, reaching the lowest since February 2023. This, combined with external geopolitical influences, is causing concerns among financial experts about Japan’s long-term economic stability.
Ahead, technical analysis proposes the USD/JPY may persist in its bullish trend, with probable resistance at the psychological threshold of 158.00. Should there be a bullish breakout, it may drive the pair close to the upper boundary near 158.60. Conversely, any compromise at the critical support level of 154.90 might trigger a bearish correction.
Considering the upward momentum in recent trading sessions and positive market sentiments, the USD/JPY will likely retain its bullish inclination. However, the upcoming economic data is crucial, and investors should be well-advised to stay abreast of macroeconomic indicators.
