USD/JPY Continues Bearish Trend as USD Struggles for Recovery

The USD/JPY pair remains entrenched in a bearish trend, marked by the formation of a bearish Triangle pattern. The US Dollar (USD) continues to grapple with a lack of meaningful recovery, hovering near its lowest level since April 2022, which was reached last Friday. This downward pressure on the USD stems from market expectations that the Federal Reserve (Fed) will adopt a more dovish stance. The consensus in the market suggests that the US central bank will conclude its policy tightening campaign after the widely anticipated 25 basis points lift-off at the upcoming policy meeting scheduled for July 25-26. Consequently, US Treasury bond yields continue to decline, weighing on the Greenback and dragging the USD/JPY pair lower.

Conversely, the Japanese Yen (JPY) finds support from speculations that the Bank of Japan (BoJ) may make adjustments to its Yield Curve Control (YCC) policy in July. Reports from Japanese media indicate that the BoJ is likely to raise its inflation forecast for FY2023, surpassing the 2% target for over a year. This development could create pressure on the central bank to gradually unwind its ultra-loose monetary policy settings. Moreover, the prevailing cautious market sentiment favors the safe-haven appeal of the JPY, further contributing to the downside pressure on the USD/JPY pair.

The market sentiment remains fragile due to concerns about a global economic slowdown. These worries were fueled by weaker macroeconomic data from China released on Monday, indicating a loss of momentum in the post-COVID recovery. The National Bureau of Statistics of China reported a substantial deceleration in economic growth during the second quarter, while retail sales, a key indicator of consumption, slowed sharply in June. However, the possibility of additional stimulus measures from China helps mitigate pessimism in the markets, at least for the time being.