USD/JPY Pair Rebounds Strongly Amidst BOJ's Dovish Stance

The USD/JPY pair experienced a remarkable rebound, surging close to the 141.50 mark, following four consecutive days of losses. However, these gains were short-lived as the Bank of Japan (BOJ) reiterated its commitment to maintaining an ultra-loose monetary policy, which bolstered the strength of the Japanese Yen.

The US core Personal Consumption Expenditures (PCE) showed a retreat to 4.1% YoY in June, resulting in a decline in US yields. As a consequence, the US dollar, measured by the DXY index, remained relatively stable by the week's end, as the soft PCE figures exerted pressure on its performance.

Currently, the USD/JPY pair is trading near the 141.15 area, and the recent decisions made by the Federal Reserve (Fed) indicate that future choices will heavily rely on incoming data, a point emphasized by Fed Chair Jerome Powell.

Looking ahead, the Fed will receive two additional sets of inflation and job reports before its next September meeting, and these data points will significantly impact expectations regarding potential tightening policies. The impact of the Core PCE on US Treasury yields has been considerable, falling below anticipated levels.

Nevertheless, the upward trajectory of the USD/JPY pair can be attributed to the market's perception of the BOJ's dovish stance. Although the monetary policy decision did not signal any rate hikes, it did include an unexpected adjustment to the Yield Curve Control (YCC) strategy. Governor Ueda's comments highlighted that this move was not a step toward normalization, as the bank still deems raising short-term rates as premature. As a result, the BOJ's dovish tone has weakened the Yen, contributing to the gains made by the USD/JPY pair.

TurnAround Point: 143.00

Our preference

Short positions below 143.00 with targets at 139.00 & 137.20 in extension.