USD/JPY forecast: A drop to 130 cannot be ruled out

By:
on Jul 29, 2022
  • The USD/JPY price continued falling as the US dollar sell-off continued.
  • Japan published encouraging jobs and consumer inflation data.
  • The pair will likely continue falling as sellers target the support at 130.

The USD/JPY price crashed to the lowest level since June 17th as the recent dollar momentum faded. The pair dropped to a low of 132.35, which is about 4.51% below the highest level this month. 

Japan inflation is rising 

The USD/JPY price dropped sharply after the latest economic data from Japan. According to the statistics agency, the headline inflation in Tokyo rose from 2.3% in May to 2.5% in June of this year. Excluding the volatile food and energy prices, inflation in the city rose from 2.1% to 2.3%. 

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These are important numbers since Tokyo accounts for most of the country’s economy. Also, they signal that the rising commodity prices and the weaker Japanese yen is contributing to rising prices. The soaring inflation led to a sharp decline of retail sales. 

 Still, Japan has an extremely low inflation rate compared to peer countries like the United States and the UK. 

Additional data revealed that the labor market in Japan is still strong. The unemployment rate remained unchanged at 2.6% while the jobs to applications ratio rose from 1.24 to 1.27.

Meanwhile, the USD/JPY pair showed that the country’s industrial production jumped from – 7.5% to 8.9% in June. 

The USD to JPY exchange rate dropped because analysts believe that the Federal Reserve will slam its tightening brakes earlier than expected. Besides, data by the statistics agency showed that the country slumped to a recession in the second quarter as inflation and trade deficit rose. Therefore, analysts expect that the Fed will start lowering interest rates in 2022.

The next key catalyst for the pair will be the upcoming US PCE data. Analysts expect that the inflation figure rose by over 4% in June. 

USD/JPY forecast 

USD/JPY

The four-hour chart shows that the USD/JPY pair dropped sharply in the past few weeks. The pair fell to a low of 132.30, which was the lowest level since June. As it dropped, the pair moved below the ascending trendline shown in purple. 

At the same time, the pair dropped below the 25-day and 50-day moving averages while the Relative Strength Index has moved below the oversold level of 24.

Therefore, the pair will likely continue falling as sellers target the next key support level at 130.

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