USD/JPY Forecast: Strong pullback as yen loses luster

• The USD/PY pair hit new lows on Friday after a mixed US employment report.

• The US nonfarm payrolls report showed slower job growth in August.

• Japan’s GDP rose 2.9 percent, compared with estimates of 3.2 percent.

The USD/JPY forecast shows a slight rebound in the pair after Friday’s decline as the yen loses its luster. At the same time, the dollar gained as it became clear that the Fed could cut rates gradually.

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After a mixed US employment report, the USD/PY pair hit new lows on Friday. The nonfarm payrolls report showed slower job growth, with the economy adding 142,000 jobs compared to estimates of 160,000. Meanwhile, the unemployment rate fell to 4.2%.

The initial reaction was a drop in the US dollar. However, it recovered as it became clear that the labor market was steadily slowing. Therefore, the risk of a recession remains low. While most major peers lost against the dollar on Friday, the yen held steady on interest rate hike optimism.

Notably, on Thursday, BoJ board member Hajime Takata said the central bank should continue to raise interest rates. However, he stressed a cautious approach amid heightened market volatility. Policy makers are ready to push interest rates higher as long as economic consumption increases.

However, by Monday morning, economic data from Japan dampened some of the optimism of this rate hike. Japan’s economy grew more slowly than forecast in the second quarter. GDP rose 2.9 percent versus estimates of 3.2 percent. Weaker-than-expected economic performance poses a challenge to the BoJ’s rate hike outlook.

Key USD/JPY Events Today

Market participants do not expect any high-impact economic release in Japan or the US.

USD/JPY Technical Forecast: Bears have found a low at 142.03 support

Technically, USD/JPY is recovering after finding support at 142.03. However, the price is trading below the 30-SMA, with the RSI in bearish territory. Therefore, the trend is bearish, which means that the rebound could only be temporary.

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The bulls are approaching a solid resistance zone comprising the key 0.382 Fib and 144.00 levels. Furthermore, the SMA trades just above this area. Consequently, the price will likely stop at this level and return lower. A break below 142.03 will confirm the continuation of the downtrend.

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