Japanese Yen Retreats as US Dollar Takes Flight Despite Debt Debacle. Higher USD/JPY?

Japanese yen, USD/JPY, US dollar, PBOC, Yellen, Biden US debt ceiling – discussion topics

  • The Japanese yen weakened after domestic CPI and PPI figures rose.
  • China’s PBOC increased liquidity, but equity markets barely reacted.
  • The US debt ceiling is causing turmoil in the markets. Will it drive the USD north?

The Japanese yen depreciated again today, while the Aussie and Kiwi dollars gained slightly after the US dollar posted big gains last Friday.

Japan’s PPI came in above expectations at 5.8% year-on-year at the end of April, rather than 5.6% as expected. The national consumer price index will be released on Thursday and a Bloomberg survey of economists forecast an overall annual rate of 3.5%, up from 3.2% previously.

Rising price pressures could call into question the Bank of Japan’s continuation of loose monetary policy.

Elsewhere, the People’s Bank of China (PBOC) today left the interest rate on the medium-term lending facility (MLF) unchanged at 2.75% but injected 25 billion yuan in liquidity.

Despite the move, APAC equity markets were little moved on Monday, with futures pointing to a flat start to the Wall Street session. However, Japan’s TOPIX index is trading near its 30-year high.

The issue of the US debt ceiling is likely to be a key theme for markets this week. Over the weekend, US Treasury Secretary Janet Yellen made it clear that the economy and financial markets would be damaged if Congress was unable to raise the debt ceiling.

US President Joe Biden is optimistic that an agreement can be reached and is expected to meet with House Speaker Kevin McCarthy on Tuesday.

The US Senate and House of Representatives are both in session until Thursday. According to the President’s schedule, he will stay in Washington until Wednesday before leaving.

If no agreement is reached by Thursday, the logistics for a satisfactory outcome could become more difficult.

Crude oil prices are easing again today after falling last week. The WTI futures contract has fallen below US$69.50 per barrel, while the Brent contract was at US$73.50 per barrel at press time.

Gold is holding above the US$2,010 per ounce mark and the rest of the metals complex has also started the week on a positive note.

Several speakers from the BoE, ECB and Fed will cross the wires in the coming days, while the Empire State Manufacturing Survey will be a key data point for the markets.

TECHNICAL ANALYSIS of USD/JPY

USD/JPY extended last week’s gains today as it holds above several ascending trendlines.

While it broke above several short- and medium-term simple daily moving averages (SMAs), the 200- and 260-day SMAs are above price. This could suggest that bullish momentum is developing in the short and medium term, while longer-term momentum signals have yet to confirm this.

Resistance could lie at the previous highs at 137.77, 137.91 and 138.18. On the downside, support is near the recent lows at 133.75, 133.50 and 133.00.

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