At the beginning of last week, the dollar-yen pair reached a 5-month low, recording 109.05. But then the price bounced off from the bottom of the price and returned to the 110th figure. Today, USD/JPY bears made another attempt to decline, dropping to the target of 109.80. Such fluctuations were a result of, above all, the external fundamental background, although today the Japanese yen was also supported by data on Japan's GDP growth.
The Japanese economy surpassed the expectations of analysts and expanded by 0.5% in the first quarter, although most experts predicted a negative trend: according to their calculations, the indicator should fall into the negative area, reaching the -0.1% mark. Such a discord surprised traders, after which the pair impulsively descended into the region of the 109th figure. The fact is that the Japanese regulator took a wait-and-see attitude following the results of its last meeting: according to Haruhiko Kuroda, the Bank of Japan will adjust its policy "as the need arises". At the same time, he expressed hopes that the beneficial economic cycle remains in force, and this fact will affect GDP growth and inflation. Today's numbers have confirmed his words, reducing the likelihood of monetary policy easing in the near future. Although only recently, at the beginning of April, Kuroda assumed the probability of a decrease in the interest rate further into the negative area. At that time, he did not talk about a provisional guideline, but warned that such a scenario is quite likely.
In the context of the stated intentions, today's release had a special meaning. Now the Bank of Japan, most likely, will keep a wait-and-see position at least until next spring, tracking the further dynamics of GDP and inflation (which, by the way, also shows a gradual growth).
Such prospects provided background support for the Japanese currency. In general, the demand for yen was due to the growth of anti-risk sentiment against the background of deteriorating relations between the US and China. There is a so-called "fear index" (VIX, on the Chicago Stock Exchange of Options), which reflects traders' expectations of the US market. On May 13, when the USD/JPY pair reached a 5-month low, this index updated the annual high. By and large, the VIX reflects the level of demand for defensive instruments, which includes the yen. So, at the beginning of this week, the index began to show growth again. For comparison: today the value of VIX is located at 16.42, while in April it fluctuated in the range of 12-14 points.
This dynamic is due to the escalation of conflict between the United States and China. The global trade war has narrowed to the situation around the Chinese company Huawei, which was recently included on the White House sanctions list. Now US technology can be sold or transferred to Huawei only if the Bureau of Industry and Security of the US Department of Commerce provides a special license for this. In addition, a giant like Google will have to request permission if it wants to install its Android operating system for Huawei gadgets. According to available information, Google has already introduced restrictions on the use of Android software on Chinese smartphones. Now the financial world froze in anticipation of a reciprocal step from China. According to the American press, Beijing is considering the option of termination of cooperation with those partners who agree to stop supplying Huawei.
Wall Street responded to such prospects accordingly: at the beginning of the US session, the main indices sharply plummeted. At the time of this writing, the Dow Jones Industrial Average fell by 0.4%, the S&P 500 by 0.42%, and the Nasdaq Composite by 1.25%. In the foreign exchange market, demand for defensive assets increased, putting pressure on the USD/JPY pair.
In addition, traders are concerned about the yuan's devaluation, which for two weeks fell against the dollar from 6.730 to 6.911. According to experts, such a trend will provoke Trump to a new wave of criticism: the US president has repeatedly accused China of deliberately cheapening its currency to ease the pressure of the US tariff policy.
In other words, the general geopolitical tension suggests that interest in the yen may increase in the near future - especially if Beijing implements its threats regarding the situation with Huawei.
From a technical point of view, the situation is as follows. On the daily chart, the USD/JPY pair is between the middle and lower lines of the Bollinger Bands trend indicator, as well as below the Kumo cloud, which indicates the priority of a downward movement. But the price is still above the Tenkan-sen line, which corresponds to the mark of 109.70. It is worth noting that when overcoming this level, the Ichimoku Kinko Hyo indicator will form a bearish "parade of lines" signal, which will indicate the resumption of a downward trend. In this case, the next target will be the 1.2125 mark - the bottom line of the Bollinger Bands indicator on the daily chart. If the political crisis in the relations between the two superpowers gets its continuation, the yen will quickly reach this level before the end of this week.
