Fundamental analysis USDJPY for 13.05.2024

The USD/JPY currency pair has been showing strong performance, recently trading around 155.85 during Asian trading hours, influenced by differing monetary policies and economic data from the U.S. and Japan. Although Japan reported higher-than-expected household spending, spending fell 1.2% year-on-year in March, compared to a 0.5% year-on-year decline in February. The inflationary environment in Japan is in contrast to the robust inflation in the United States, which encourages consumer demand for  USD/JPY. In addition, a weaker yen could influence future household spending trends. As the yen weakens, import prices rise, and consumers are forced to cut back on spending and affect the Japanese economy. Private consumption accounts for more than 50% of the Japanese economy.

Early Monday, the BoJ recently cut back on its purchase of Japanese Government Bonds in the 5-10 year window, signaling potential shifts toward normalizing monetary policy. However, former BoJ Board member Tsutomu Watanabe advocated against raising interest rates despite the weakening Yen, citing potential adverse impacts on consumption and services inflation.

In the U.S., upcoming consumer inflation expectations are anticipated to increase slightly, which could adjust market predictions regarding a September Fed rate cut. An unexpected rise in the Michigan Inflation Expectations Index has already influenced the USD/JPY upward. If U.S. inflation data this week indicates higher-than-expected figures, it might prompt the Fed to maintain a higher-for-longer rate path, which could further support the USD against the JPY. The rate differential continues to favor the USD, as highlighted by recent shifts in market odds against a June rate cut by the Fed.

Meanwhile, comments from Fed officials, like Loretta Mester and Philip Jefferson, expected later on Monday, along with key U.S. economic reports on CPI, PPI, and retail sales, will likely provide additional guidance on the currency pair's short-term direction. Despite these factors, threats of intervention may cap any significant gains in USD/JPY. The dynamic between easing U.S. consumer sentiment and Japan's strategic monetary decisions will continue to be critical for the currency pair's trajectory.

Technical analysis and scenarios:

The hungry state of the Alligator with its jaw below the lips and teeth indicates that the market is in a strong uptrend. This condition means that buyers are now dominating the market. Awesome Oscillator (AO) and Accelerator Oscillator (AC): While in the gray area and exhibiting divergence, both do not provide clear direction. However, the underlying trend that the Alligator is indicating suggests that divergence may temporarily halt the trend rather than reverse it.
Main scenario (BUY)
Recommended entry level: 156.225
Take profit: 157.000
Stop loss: 155.500
Alternative scenario (SELL)
Recommended entry level: 155.500
Take profit: 154.750
Stop loss: 156.225