The USD/JPY pair slid below 123.00. The Japanese yen strengthened as a safe haven currency on worse-than-expected economic figures from China and other events that made investor risk sentiment get worse and worse.
The case for further easing by the Bank of Japan is building. Japanese economy contracted in Q2. GDP fell by an annualized 1.6%. Japan’s export growth slowed in July, while private sector demand is low.
On Friday, Japan will release inflation and retail sales figures. According to a Reuters poll, core consumer prices in Japan have slipped in July, the first fall in more than 2 years. Other data may to provide some positive news: according to the forecasts, household spending probably rose in July as hot weather spurred sales of summer clothing and air conditioners. Retail sales are expected to show a 1.1% gain in July on-year, up for the four straight month, though the pace of growth has moderated in the past few months.
There are some expectations of the Bank of Japan’s additional monetary stimulus in October. These expectations will provide some support for the pair. However, the central bank is very unlikely to make any new steps before the Federal Reserve’s meeting on September 17.
All in all, we expect USD/JPY to remain under pressure. Next support is in the 122.30/00 psychological area and at 121.50 (2015 uptrend line). On the upside resistance is at 123.60 and 124.50. 