The USD/JPY pair reached 147.30 yesterday, its lowest level since October 8, 2024, and is currently trading near the 147.50 level. The pair has declined by approximately 6% since the beginning of the year. Negative momentum appears to dominate the upcoming phase due to several fundamental and technical factors.
Fundamental Factors:
- PMI Data: The manufacturing PMI recorded a contraction at 49.0, slightly above expectations (48.9) and the previous reading (48.7). Meanwhile, the services PMI showed growth at 53.7, exceeding forecasts (53.1) and the prior reading (53.0).
- Narrowing Yield Gap Between U.S. and Japanese Bonds: For example, the yield on Japan’s 10-year government bonds is around 1.554%, while the 10-year U.S. Treasury yield stands at approximately 4.290%, meaning the gap between them has narrowed to about 2.736%.
- Significant Weakness in the U.S. Dollar: Several U.S. economic indicators signal notable weakness, including declines in existing, new, and pending home sales, along with the steepest drop in consumer confidence in four years. The services PMI contracted to 49.7, its lowest level in two years, suggesting a potential economic slowdown.
- Interest Rate Expectations: Japan is expected to continue raising interest rates in the coming period, while uncertainty looms over U.S. interest rate policy, with expectations of further rate cuts. This scenario could further narrow the gap between U.S. and Japanese interest rates.
Technical Factors:
- MACD Indicator: The blue line is below the orange signal line, indicating continued negative momentum for the USD/JPY pair.
- Directional Movement Index (DMI): The DMI+ is around 12 points, while the DMI- is approximately 23 points, reflecting strong selling pressure on the dollar against the yen. Additionally, the ADX indicator is at 29 points, suggesting a strong bearish trend.
- Relative Strength Index (RSI): Currently at 31 points, signaling continued downside momentum.
Focus on U.S. Employment Data:
Market participants are closely watching the upcoming U.S. non-farm payroll (NFP) report, along with the unemployment rate and average hourly earnings data, scheduled for release on Friday. These figures are expected to have a direct impact on the USD/JPY pair’s movement. Analysts predict that the U.S. economy will add 159,000 new jobs in February, compared to 143,000 in January. The unemployment rate is expected to remain steady at 4.0%, matching January’s figure. Additionally, average hourly earnings are projected to grow by 4.1% year-over-year, the same rate recorded in January.
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice. All trading involves risk.
