The USD/JPY price rose in early trading after the latest Tankan survey numbers from Japan. The pair rose to a three-month high of 110.16, bringing the year-to-date gain to more than 7%.
Japan recovery continues
The Japanese economic recovery accelerated in the second quarter helped by strong demand locally and overseas. According to the Bank of Japan, sentiment among large companies in the manufacturing and services sectors increased to the highest level in more than three years. The manufacturing index increased from 5 to 14 while the non-manufacturing index rose from -1 to 1. This increase was lower than what analysts were expecting.
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The data showed that Japanese companies were seeing strong demand locally and overseas. However, many of these companies continued to face significant challenges like higher input costs and a shortage of supplies. Recently, the automobile market has continued to experience semiconductor shortages. The country is also facing challenges dealing with the pandemic that saw a state of emergency implemented in Tokyo, Osaka, and other countries.
Analysts expect that business activity will start improving in the second half of the year as the country ramps up the vaccination drive. Also, the country will likely receive a boost from the upcoming Olympics games.
The USD/JPY also reacted to the latest manufacturing PMI data from Japan. The numbers revealed that the PMI declined from 53.0 to 52.4 in July. The report said:
“”Manufacturers continued to note concern regarding ongoing supply chain disruption, which has induced sharp rises in the price of raw materials amid severe shortages. Cost burdens faced by businesses rose at the sharpest pace since March 2011”
Looking ahead, the key driver for the USD/JPY will be the latest US employment numbers. On Wednesday, data by ADP revealed that the country’s private sector added 692,000 jobs in June after adding 886k in the previous month. The Bureau of Labour Statistics will publish the latest NFP data on Friday. Economists polled by Reuters expect the data to show that the economy added more than 700k jobs in June while the unemployment rate declined to 5.7%.
USD/JPY technical analysis
Turning to the four-hour chart, we see that the USD/JPY price rose in June. It has also formed an ascending channel that is shown in blue. The pair is also above the 25-day moving average and the Ichimoku cloud indicator. Further, the two lines of the MACD indicator have moved above the neutral line. Therefore, the pair will likely keep rising in July as the divergence between the Bank of Japan (BOJ) and the Federal Reserve widens.
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