Unlike most other G10 currencies, which are sensitive to the dynamics of US stock indices, the Japanese yen preferred a peaceful sleep in June. For two decades in a row, the USD/JPY pair stubbornly refused to leave the narrow trading range of 106-107.5, which should have excluded the "Japanese" from the sphere of interest of major players in Forex. Market professionals are well aware that the calm is followed by storms, it remains only to determine what will wake up the yen.

Despite the decline in retail sales in the "Land of the Rising Sun" for two consecutive months by a double-digit amount (-13.9% in April and-12.3% in May), rumors of a reduction in the BoJ's GDP forecasts at the July meeting and a confident US dollar, the ranks of fans of "Japanese" do not decrease. According to JP Morgan, after the world's leading central banks cut rates to zero, the exchange rate formation on Forex should become more fundamental. At the same time, currencies with cheap valuations, resilience to external shocks, and current account surpluses should do well. One such currency is the yen, which, along with the Swiss franc and Swedish Krona, has managed to strengthen against the greenback since the beginning of the year. Unlike the other G10 currencies.

The talk that Haruhiko Kuroda and his colleagues at the July 14-15 meeting will reduce economic growth estimates for the 2020/2021 fiscal year from the current 3-5% does not indicate that the BoJ will ease monetary policy. Currently, rates on 10-year bonds are stable, and the practice of targeting returns leads to their spreads with 30-year securities growing for three consecutive months, which is the longest series since September 2018.

Japan's GDP forecasts

Dynamics of the yield curve in Japan

We can hardly expect changes in fiscal policy. The stimulus of $ 2.2 trillion, which is about 40% of GDP, is one of the largest in the world, but so far the money reaches recipients very slowly. In the US, on the contrary, rumors about additional support measures from the Federal Reserve, the White House, and Congress are increasing, due to the deterioration of the epidemiological situation. If a sharp increase in the number of infected people does not occur, and the US economy does not go to a second lockdown, the weakening of the dollar may push the USD/JPY pair below 106. On the contrary, the second wave of COVID-19, the new closure of the economy and its W-shaped recovery will strengthen the demand for safe-haven assets. The role of the main one is performed by the dollar.

In the week to July 3, releases of data on US business activity in the manufacturing sector from the ISM and the labor market, as well as the publication of the minutes of the last FOMC meeting may be the events that will finally wake up USD/JPY. A breakout by a pair of resistances at 107.5 and 107.65 will allow forming longs in the direction of the pivot levels of 108.7 and 108.9 and the target at 88.6% according to the "Shark" pattern. On the contrary, a confident assault on support at 106-106.1 will give an excuse to open short positions with a target of 105.1 (161.8% for AB=CD).

USD/JPY, the daily chart