USD/JPY: Japanese pressured ahead of final Q3 GDP data release

The USD/JPY rose for the tenth straight day as forex investors reacted to the latest US stimulus. The pair reached a high of 108.55, which is the highest level since June 8. It is also 5.8% above the lowest level this year.

Rising US yields puts pressure on the yen

The USD/JPY price rally continued today as the US dollar continued to rally after the Senate voted in favour of the proposed $1.9 trillion stimulus package. The bill will provide $1,400 stimulus checks to Americans making less than $75,000 a year. It will also provide more funds to other priorities like vaccine distribution and enhanced employment benefits.

The stimulus came at a time when the US economy is recovering. Already, the government has vaccinated more than 50 million people and the trend will continue. Also, the labour market is picking-up as evidenced by Friday’s non-farm payroll numbers. Also, last week, data by Markit showed that the services and manufacturing PMIs improved in January. 

Therefore, another stimulus of this scale has the ability to overheat the economy. For example, in February, US retail sales jumped because of the $900 billion stimulus package that was passed in January. If the economy overheats, the Fed’s remedy is to increase interest rates and taper its asset purchases. These measures would be positive for the US dollar. Indeed, it is the main reason why the US yields are rising today, as shown below.

Later today, the USD/JPY will react to the final reading of Japan’s GDP numbers. Economists expect the data to show that the overall Japanese economy expanded by 3.0% in the fourth quarter. This led to a 12.7% annualised increase as the country continued to recover. The statistics agency will also publish the household spending and income data.

USD/JPY technical forecast

On the daily chart below, we see that the USD/JPY broke-out above the descending channel on January 28. Since then, the pair has been in a strong uptrend. It has already gained more than 4.4% from the upper side of the channel.