USD/JPY Trades Near 145.50 Amidst Mixed Market Signals

The USD/JPY pair currently hovers around 145.50 on the day. The immediate support level for USD/JPY is identified at the 144.95 area. This level serves as a focal point as the market digests a blend of economic indicators and central bank activity.

Adding to the mix, Japan's manufacturing sector faced its third consecutive month of contraction in August, as reported on Wednesday. Jibun Bank's flash PMI reading for Japan's manufacturing sector for the same month registered a slight increase to 49.7 from the previous month's 49.6, falling short of the anticipated 49.5. In contrast, the Service PMI rose from 53.8 to 54.3.

Earlier in the day, Japan's initial reading of the Jibun Bank Manufacturing PMI for August showed a marginal improvement, rising from 49.6 to 49.7, surpassing the expected 49.5. The Services counterpart also followed suit, climbing to 54.3 for the same month from the previous 53.8.

As market participants shift their gaze to bond markets, the US 10-year Treasury bond yields have retreated slightly from their peak levels since late 2007, settling at 4.31% at the time of writing. On the other hand, Japanese Government Bond (JGB) yields are struggling at levels last seen in 2014.

Complicating the USD/JPY pair's outlook are mixed concerns surrounding the Bank of Japan (BoJ). Governor Kazuo Ueda refrained from divulging details about his meeting with Japan's Prime Minister Fumio Kishida, which he labeled as 'routine'. Meanwhile, BoJ's Kuroda mentioned having discussed the bank's July policy decision with the Prime Minister.

Turning to the United States, the country's Existing Home Sales for July and the Richmond Fed Manufacturing Index for August displayed slight improvements. These data points could potentially influence USD/JPY sellers. However, hawkish remarks from Federal Reserve Bank of Richmond President Thomas Barkin lent support to the pair.

In the broader context, the prospects of improved US-China relations and a positive performance from Japan's benchmark equity index, Nikkei, have provided a degree of backing to risk sentiment. These factors have also played a role in dampening the USD/JPY pair, amidst ongoing uncertainty about the major central banks' next moves.

Looking ahead, the market will closely monitor the preliminary August Purchasing Managers Indexes (PMIs) as well as US Existing Home Sales data for July. These factors, coupled with US-China developments and bond market dynamics, will shape the intraday trajectory of the USD/JPY pair. However, a spotlight will be on the Tokyo Consumer Price Index for August, along with the speeches of key central bankers at the annual Jackson Hole Symposium, as they hold the potential to sway market sentiment significantly.


Our preference

Long positions above 144.93 with targets at 145.71 & 146.10 in extension.