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  • USD/JPY has been pressured with the BoJ steeping and the JGB’s nosedive yesterday.
  • In overnight markets, the Fed was signalling a rate hike in September while US data was largely ignored as investors instead took to the sidelines weighing up what a trade war would mean for markets.

USD/JPY traded as low as 111.49 post the Fed from high of 112.11. Currently, the pair is steady in the Tokyo open at around 111.65. The Japanese yen showed signs of risk aversion returning overnight and hardened up at the 61.8% of late July dive around 112.19. The headlines over the plans for higher tariffs on USD 200bln of imports from China and the Treasury proposing 25% tariffs over the current proposal of 10% has left the door open for retaliation from China.  
Meanwhile, The July/August FOMC statement contained very few changes from the June statement but the cards are left for a rate hike in September. Analysts at Nomura explained that the FOMC made minor tweaks to its language on economic assessment to reflect strong incoming data:

“The statement used “strong” to qualify economic activity instead of “solid” in the June statement. This adjustment appears consistent with strong Q2 GDP growth. The statement also indicated that the unemployment rate has “stayed low,” in line with the June employment report. Language on forward guidance and balance sheet policy did not change. The phrase “for now” was not added to the statement despite Chair Powell’s seemingly deliberate use of the phrase to qualify the likely path of policy in his recent semiannual testimony to Congress. However, this is consistent with our view that the Committee will be unwilling to signal changes to its most likely path for policy with such a tweak. Additionally, there was no explicit description of risk from trade policy in the statement. This suggests that trade risk has not yet affected real economic activity enough to specify the risk explicitly. The FOMC minutes will likely provide more information on the Committee’s assessment on trade-related risk to its economic outlook.”

All eyes turn to US job market

Following Wednesday’s impressive ADP report, as a prelude to Friday’s nonfarm payrolls, the dollar can find further support and the yen risk-off rally may well be shortlived, especially while the price is contained above key support levels and within familiar ranges. The ADP reported a 219k gain in private payroll employment during July with a slight upward revision to the June numbers. The analysts at Nomura explained that the strength was broad-based across industry groups with a healthy 42k from goods-producing firms and another 177k from service-providing. “The report is consistent with our forecast of a 195k increase in NFP tomorrow (190k from private).”

USD/JPY levels

Valeria  Bednarik, chief analyst at FXStreet explained that technically, the pair remains depressed having met sellers earlier in the day at around the 61.8% retracement of its daily slump between 113.71 and 110.58 at around 112.20, now also below the 38.2% retracement of the same decline. In the 4 hours chart, the pair also broke below its 100 SMA, while technical  indicators  turned sharply lower from overbought readings, but remain within  positive  territory. The 23.6% retracement of the mentioned decline at 111.20 is now the immediate support, with a break below it exposing the 110.50 price zone.