USDJPY, which has been in a bullish trend since Monday, faced some resistance at $138.96 during the Asian session today. The bears have pushed down the price of this pair from this level, given the stable reading from the Japanese unemployment rate report released yesterday.
The fact that the Japanese unemployment rate has remained unchanged for a third consecutive time in 2022 has given investors more confidence to invest in the Japanese economy. Hence, we find Japanese stocks also rising again during the Asian session today.
According to the unemployment rate data released yesterday by the Statistics Bureau of Japan, the Japanese unemployment rate rose to 2.6%, which accords with both the forecast and previous records of this data. Japan’s number of unemployed people fell to 1.76 million YoY in July. The number of employed people remained unchanged at 67.34 million. The active labour force was reduced by 0.1% to 69.12 million.
Similarly, the job application ratio improved significantly, rising to 1.29 against the forecast of 1.27.
The Japanese labour market has proved so vital notwithstanding the limitations of the global inflation challenges. Its inflation rate has been low compared to other major economies, including the US and the UK.
Consequently, the Japanese yen strengthened gradually against all its base crosses in the market, such as EURJPY, GBPJPY, and USDJPY. All the pairs matched with the Japanese yen as its counter currency had been pushed into a downward trend while the Japanese yen recovered.
This is understandable as the unemployment rate data dramatically influences the country's currency. Thus, a high unemployment rate discourages investors from investing in the country's economy, while a reduction in unemployment attracts more investments.
Consequently, the bears have been favoured in pushing down the price of USDJPY during the Asian session today.
The weakening dollar index has further paved the way for the bears to massacre USDJPY today on the market. The dollar index (USDX) eased to 108.70 on Tuesday from its high set last week at 109.46. This has offered other pairs crossed with the US dollar an opportunity to breathe again, including USDJPY.
Investors are eagerly awaiting the reports from the US CB Consumer Confidence and its JOLTS Jobs index to determine the next direction for this pair.
The Conference Board (CB) Consumer Confidence today will determine if the US dollar regains its strength and stops the bears from dominating USDJPY or whether to continue the downward trend. The CB Consumer Confidence data is meant to portray consumers’ confidence in the past month, as evidenced by their spending. Higher readings from this data will strengthen the US dollar and likely challenge the bears to take over USDJPY entirely today. A lower reading will support the bearish outlook for USDJPY.
The next important factor influencing the performance of USDJPY in the market today is the results of the US JOLTS job openings. This data measures the number of new jobs created that are not yet occupied by the unemployed, excluding the farm industry. A higher reading from this data will strengthen the US dollar, supporting more upside movement for USDJPY, while a lower reading will probably favour the bears.
Both the bulls and the bears will need to struggle for who takes control of USDJPY today as both have fundamentally sound factors and expectations to strengthen the currency, respectively. This means we can expect a series of rebounds for USDJPY today in the market.
How will the stable unemployment rate data affect the Japanese Yen (JPY)?
The fact that the Japanese labour market has maintained fair stability for three consecutive months now builds investors' confidence in the Japanese economy’s health. It attracts more demand for the Japanese yen. This means we can expect the Japanese Yen to strengthen across its various crosses in the market.
The only setback for the Japanese yen is that its monetary policymakers (BoJ) have kept its interest rate unchanged at a negative rate of -0.1% for a considerable period. This has always given the US dollar a substantial advantage over the Japanese yen, as the Fed has raised the interest rate for the US dollar to 2.25%, making it very attractive to investors compared to the Japanese yen. Hence, more interest rate hikes for the US dollar will always discount the strength of the Japanese yen in all its crosses with the US dollar, especially USDJPY.
USDJPY is currently sitting on weak support at $138.49 after facing rejection at the upper resistance at $138.97. A break below this support could lead to more downsides, with the next target of $138.24. A break below this strong support could trigger a massive sell-off with the next support at $137.50.
Alternatively, should the current support be maintained, we can expect a retest of the above resistance level.