The yen falls with soft industrial output, USD/JPY eyes 129

Industrial output fell -1.3% in April compared with -0.2% expected. It didn’t come as a huge surprise though, given output from South Korea fell -3.3% - its fastest contraction since the pandemic, around 90 minutes beforehand. And that makes industrial output yet another weak data print for Japan’s Q2 GDP, alongside a wider trade deficit.

Too soon to talk of a ‘smooth exit’ from BOJ’s loose policy

Whilst Kuroda spoke of a smooth exit from the BOJ’s ultra-loose policy last week, the figures don’t back that up any time soon. And that means bad data for Japan is good for the likes of AUD/JPY and USD/JPY.

Hawkish comments from the Fed’s Christopher Waller saw USD/JPY catch a bid at the open. With

100-bps of hikes expected over the next two Fed meetings and the BOJ firmly backing a weaker yen, the policy divergence is still very much in play. Add higher equity markets and China reopening into the mix, and we have the ideal backdrop for carry trades to rise further.

129 up next for USD/JPY?

Price action suggests we’re amidst a trend reversal or at least a correction against its fall from 131. A bullish divergence formed on the four-hour chart before prices broke above the bearish channel, then found support at the 200-bar eMA.

We’ve seen clear range-expansion today after Waller’s comments and weak IP data from Japan. Our initial target of 128.30 was met quite quickly, but we now see the potential for a run to 129. If prices retrace from 128.30 then perhaps 128 or 127.85 can provide support ahead of its next leg higher to the 129 resistance zone.

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