USD/JPY is trading at 106.30, breaking new ground after already reaching the highest levels since October 2008, at the height of the global financial crisis.
Here are three drivers for the pair higher:
- USD storm: First and foremost, the US dollar is just storming the board, knocking down nearly every currency on its path. The markets are adjusting to the end of QE, that will be followed by a rate hike in the US, sooner or later. The greenback only took a short break on the weak NFP, but the surge continues.
- Weak Japanese data: the downwards revision of Japanese GDP to a contraction of 1.8% in Q2 took a toll on the yen. This was followed by flat Tertiary Industry Activity, contrary to expectations for a rise of 0.3%. A drop in consumer confidence down to 41.2 points also weighed. There is a growing notion that the sales tax hike in April hit the Japanese economy harder than predicted. Adjustments by the central bank and perhaps the government might be warranted, and this weighs on the yen.
- No new sanctions in Ukraine: While the European Union did agree on new sanctions against Russia on the conflict in Ukraine, the leaders also decided to postpone the implementation, in order to see if the ceasefire and the efforts to reach peace are fruitful. It seems that the leaders are just afraid that counter sanctions from Russia will hurt the economies quite badly, so they even ignore the fact that there is some fighting going on. As the yen still remains a safe haven currency, the current relative calm curbs demand for it.
What are the next targets for USD/JPY? The round numbers of 107, 108 and 110 are next – levels last seen around 6 years ago. On the downside, we have the previous high of 105.70, followed by 105 and 104.10.
For more, see the USDJPY forecast.
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