USD/JPY declines from its 38-year high, with little room for further decline.
Thursday's Asian session sees the USD/JPY pair slip down, eroding some of the day's significant advances to the 160.85–160.90 range, or its highest level since 1986. Spot prices are currently trading in the mid-160.00s, but given the significant difference in interest rates between the US and Japan, any serious corrective decrease appears unlikely.
A thorough plan outlining the decline of bond purchases has been reticent to come from the Bank of Japan (BoJ). On the other hand, given the robust state of the US economy, recent hawkish remarks made by Federal Reserve (Fed) officials indicated that the US central bank is not in a haste to begin its cycle of rate-cutting.
Because of this and the general upbeat mood in the world's equities markets, the safe-haven Japanese Yen (JPY) may continue to be undermined and the USD/JPY pair may benefit. However, aggressive bearish traders should exercise care.
Amid rumors that Japanese authorities would interfere in the markets to support the national currency, investors are still cautious. Actually, Vice Finance Minister Masato Kanda of Japan reaffirmed that in the event that uncontrollably high exchange rates adversely affect the country's economy, the government is ready to respond appropriately.
In addition, the positive Retail Sales data from Japan, which increased by 3% YoY in May, supports the JPY somewhat and causes some profit-taking in the USD/JPY pair.
With the release of the final Q1 GDP print, Durable Goods Orders, the regular Initial Weekly Jobless Claims, and Pending Home Sales, traders are now focused on the US economic docket. This will affect the USD and move the USD/JPY pair ahead of Friday's Tokyo Core CPI, along with the yields on US Treasury bonds.
The US Personal Consumption Expenditures (PCE) Price Index, which is regarded as the Fed's favorite inflation indicator and should provide the currency pair new momentum, will continue to be the center of attention.
Levels to observe
Any further decline is probably going to draw some buying close to the key 160.00 level. The horizontal resistance breakpoint of 159.75, which has since turned into support, comes next. If this is broken, the USD/JPY pair may continue its corrective slide all the way to the round-figure mark of 159.00.
Conversely, the multi-decade high in the 160.85–160.90 range can serve as a temporary barrier. A little follow-through purchasing above 161.00 will be viewed by optimistic traders as a new catalyst and pave the way for an extension of an already formed uptrend.
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