- USD / JPY gains some traction after the BoJ lowered its growth forecast for the current fiscal year.
- The rally in US bond yields supports the USD and continues to support the pair’s modest rally.
- Nervousness over COVID-19 continues to lend some support to the safe-haven JPY and limits the pair’s rally.
The pair USD/JPY moves higher during the European session on Friday, with bulls looking for a sustained move above the key psychological level of 110.00.
The pair has managed to regain some positive traction on the last trading day of the week and, for now, it appears to have broken two consecutive days of losing streak. The Japanese yen has weakened a bit after the Bank of Japan lowered its growth forecast for the current fiscal year ending March 2022, to 3.8% from 4.0% projected in April. This, in turn, has been seen as a key factor that has offered some support to the USD / JPY pair.
That said, the BoJ improved its forecast for the next fiscal year and expects the economy to expand 2.7% compared to 2.4% before expectations that consumption will rebound as vaccination accelerates. Earlier, the Japanese central bank decided to keep its benchmark policy rate stable at -10 basis points at the monetary policy meeting in July and also kept its promise to buy J-REITS at an annual rate of up to 180 billion yen.
The bulls have further taken the indications of a nice rally in US Treasury yields, benefiting the US dollar. On top of this, expectations that the Fed will tighten its policy earlier than anticipated amid rising inflationary pressures have acted as a tailwind for the USD. That said, nervousness over COVID-19 has continued to lend some support to the safe-haven JPY and limited the gains of the USD / JPY pair.
Market participants are now awaiting the US economic calendar, which highlights the release of monthly retail sales figures at the start of today’s US session. This, along with US bond yields, will influence the USD and could create some momentum for the USD / JPY pair. Aside from this, events surrounding the coronavirus saga and broader market risk sentiment could generate some short-term opportunities.