The post-Fed hike in US Treasury rates and the easing of concerns around Evergrande in China have given USD/JPY a decidedly bullish bias.
In a statement on Friday, Fed Chairman Jerome Powell said most members of the Federal Open Market Committee (FOMC) agreed that conditions were met for a gradual tapering of bond purchases
The upcoming Japanese election and the new prime minister will produce another endless series, going back two decades, of government stimulus packages. The measure will not stimulate the economy, but will highlight Japan’s structural weaknesses and weigh on the yen.
The U.S. economy will continue to outperform Japan as the pandemic gradually declines as an inhibiting factor.
Japan’s retail trade (sales) for July is expected to be the focus, even though the consumer has been reluctant to join the recovery, but it is too long ago for this to have any impact on markets. Industrial production for August has more weight, but also little potential impact. Consequently, the Tankan report for the third quarter should confirm the weak state of Japanese manufacturing and non-manufacturing industries without providing any insight into the future. Consumer confidence is expected to remain low in September.
Data for the United States begins with August durable goods orders, which are essentially a replica of retail sales figures except for capital goods orders excluding defense and aviation spending, which are widely followed indicators of business investment. Manufacturing PMI buying managers’ index will provide insight into whether labor and material shortages and price inflation have been overcome. Dollars will benefit from a positive assessment.
The rally up until reaching the range at 110.50 lasted for a considerable time, but ended abruptly on Friday. The resistance at 111.00 is much less significant, and above this region only the brief panic highs of February and March 2020 await.
The anticipation of a US rate hike should push USD/JPY higher as long as the timing of Fed tapering doesn’t halt the US Treasury market.