Japan

USD/JPY set a lower-high last week even as DXY spiked up to a fresh two-year-high. And there’s now a short-term descending triangle formation setting up in the pair.

The 150 level had held as resistance in USD/JPY until this week’s US open, at which point another DXY-fueled breakout appeared. The next major level up is the same that held multi-year highs in the pair in Q4 of each of the past two years.

It’s been a fast start to Q4 for the US Dollar. The turn in EUR/USD was a big driver yesterday and today, USD/JPY has taken over with buyers continuing a strong bounce from the Monday low.

Earlier this month I had warned that the fall on USD/JPY from the July high might already be a crowded trade. A plunge in open interest and an engulfing week on yen futures suggests I was right to be suspicious.

Next week brings three major central bank meetings, none of which seem to be on the same page policy wise. The Fed are expected to cut by 25bp and potentially set the record straight on another ‘50bp’ cut November, whereas there’s also an outside chance the BOJ may surprise with an interest rate hike given their renewed hawkish narrative. And while the Bank of England are expected to hold rates, a soft set of inflation figures could bring forward bets of a November cut.

The Japan GDP numbers are in and according to the Cabinet Office, Japan's economy grew by an annualised real 2.9% in Q2, which was revised down from an initial report of 3.1% due to lower-than-expected private consumption and capital spending within the country.

USDJPY Outlook: As monetary policy cycles operate with a lag, the impact of US interest rates is increasingly evident in the weakening US labor market, pushing the USDJPY closer to its 2024 lows ahead of the Non-Farm Payroll (NFP) employment reports.

The Nikkei has been grinding higher in recent weeks, but with momentum turning lower at resistance and asset managers are increasing longs, perhaps it's ready for a leg or two lower.

Another day, another milestone for USD/JPY which closed above 152 for the first time in nearly 34 years on Thursday.

Japan's core CPI didn't fall below the BOJ's 2% target, although it did match it. Which has seen AUD/JPY and USD/JPY retrace further from their highs in light of yen strength.

A bearish reversal pattern has formed on USD/CNH which implies a move down to 7.10. And if the yuan continues to strengthen, it could see the yen follow and scupper USD/JPY attempt at breaking 152.