After the dollar rebounded against the yen, it was blocked. Pay attention to whether the BoJ policy signal and the US PCE inflation data will lead the dollar to break through against the yen

The yen was strong in Asia on Thursday, supported by improved domestic economic data and warmer market expectations for the Bank of Japan's policy.

Industrial output rose 1.7 per cent month-on-month in June, ahead of market expectations, while retail sales rose for the 39th straight month from a year earlier to 2.0 per cent, better than a revised 1.9 per cent, data showed, reflecting the resilience of Japan's manufacturing sector and the fact that consumption has not slowed sharply due to high inflation.

"The data reinforced market expectations for the Bank of Japan to raise interest rates this year, while also triggering some position adjustments," said Toru Sasaki, FX strategist at Mizuho Securities in Tokyo.

Markets are closely watching the Bank of Japan's upcoming interest rate decision and policy outlook. Although interest rates are expected to remain unchanged at this meeting, the speech by Kazuo Ueda, BoJ governor, will be seen as a forward-looking signal of future policy tightening.

In addition, the recent defeat of the ruling party in local elections has also increased fiscal policy uncertainty, which may make the BoJ more cautious in advancing policy normalization.

At the same time, hawkish policies in the US continued to support the dollar. The Federal Reserve kept interest rates unchanged, but for the first time since 1993, two officials opposed a pause in interest rate hikes, highlighting its internal tendency to raise interest rates. Chairperson Powell said after the meeting: "It is too early to talk about a rate cut in September, and current policy has not suppressed economic growth."

The US macro data shows that the US GDP grew by an annualized 3.0% in the second quarter, and the ADP employment report also showed that private employment growth exceeded expectations, both reflecting the continued resilience of the US economy.

From a technical point of view, USD/JPY fell back after touching the 200-day simple moving average (around 149.55). This moving average has become a strong short-term resistance. If it cannot break through, it may cause the price to enter the consolidation or correction stage in the short-term.

If you break 149.55, you may quickly test the 150.00 psychological barrier, and further target the 150.40 and 151.00 areas.

The lower support levels are followed by 148.55, 148.00 and 147.80 (yesterday's daily low). If it breaks below, it will open a pullback to 147.00 or even the 100-day moving average (146.70) and test the possibility below 145.90.

The current MACD indicator continues to rise, indicating that the bulls have not lost all their momentum, but they are facing profit-taking pressure in the short term.

"Even if the daily metadata is strong, the downside for USD/JPY is limited considering the uncertainty of BoJ policy and the firm stance of the Federal Reserve. The market will be guided by the PCE inflation data and the BoJ statement." - Mika Tanaka, head of FX research at JPMorgan in Tokyo

Editorial opinion:

In the short term, the yen strengthened slightly on the back of domestic economic data, but the sustainability of its appreciation still depends on whether the Bank of Japan releases a signal of policy tightening. In contrast, the US economic fundamentals and policy expectations are biased towards the bullish dollar.

Technically, although the USD/JPY is blocked at the 200-day moving average, the support below is strong, and it is inclined to shake the pattern. Pay attention to whether the speech of BoJ President Ueda releases clues on the timetable for interest rate hikes, and whether the US PCE data released tonight can strengthen the Fed's path expectation of "maintaining high interest rates for a longer time".