USD/JPY Forecast Aug. 26-30 – Yen jumps as trade tensions weigh on markets

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Dollar/yen continues to show volatility in August. The pair fell close to 1.0% last week, as the yen took advantage of the dollar’s broad weakness. Investors will be keeping a close eye on events in the upcoming week, starting with U.S. Preliminary GDP (second estimate). As well, Japan releases Tokyo CPI and retail sales.
The safe-haven Japanese yens often strengthens when risk appetite wanes, and this was the case this week. China has retaliated against U.S. tariffs with its own tariffs on U.S. oil imports and automobiles. U.S. President Trump is not holding back any punches, and has announced new tariffs on hundreds of billions of dollars worth of Chinese imports, which would kick in on September 1 and October 1.
The Fed minutes provided details of the July meeting, in which the Fed cut rates by 25 basis points, the first rate cut in 10 years. FOMC members said that the cut was intended to stimulate inflation and business investment. The Fed was deeply divided over the July cut, with two members in favor of no change, while another two sought a 1/2 percentage cut. With economic conditions looking cloudy, investors are braced for up to three more rate cuts this year, possibly as early as September.
Is the U.S. heading into a recession? There are disturbing signs that this could indeed be the case. Some analysts are predicting that third-quarter growth could drop to just 1.5%, and the August Manufacturing PMI set off some alarm bells, falling into contraction territory for the first time since September 2009. Although the reading of 49.9 was just a shade lower than the previous reading of 50.0, a reading in contraction territory makes the headlines and causes jitters among investors. As well, this marks the seventh successive month the index has lost ground. There wasn’t much relief in the services sector, as the services PMI slowed to 50.9, down from 52.2 a month earlier.

USD/JPY fundamental movers

The U.S-China trade war saga continues. President Trump announced a delay on new U.S. tariffs against China, which were set to take effect on September 1. Still, tensions between the world’s two largest economies remains high, and the mass demonstrations in Hong Kong and the Chinese regime could lead to a further deterioration in U.S-China relations and could shake up the financial markets.

In the U.S., there was positive news from consumer inflation and spending numbers. CPI climbed 0.3% in July, matching the forecast. Core CPI remained steady at 0.3%, beating the forecast of 0.2%. Retail sales rose 0.7%, easily beating the estimate of 0.4%. Core retail sales sparkled with a gain of 1.0%, its best showing since March. On the manufacturing front, the Philly Fed Manufacturing Index slowed to 16.8, but still beat the estimate of 10.1.

See all the main events in the Forex Weekly Outlook

Key news updates for USD/JPY

Updates:

USD/JPY Technical Analysis

We start with 109.73, which has held in resistance since the end of May. 109.35 is close by.

108.70 follows.

108.10 was a swing low in late May.

107.30 has held in resistance since the first week in August.

106.61 remains relevant.

105.55 (mentioned last week) has switched to resistance following strong losses by the pair late in the week. It is currently a weak resistance line.

104.65 is next.

The round number of 104 was a key line in May 2008. 102.50 follows.

101.51 is the final support line for now.

USD/JPY Daily Chart

USD/JPY Sentiment

I am bearish on USD/JPY

The trade war between the U.S. and China escalated significantly, and lower risk appetite could fuel more gains for the safe-haven yen. Fears of recession in the U.S. and the growing possibility of further rate cuts by the Fed in 2019 could boost the Japanese currency.

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Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.