Following Tuesday’s six-month high, the US dollar against the Japanese yen has fallen again. During the first half of the European session, spot prices drop below the mid-140.00s, but a significant correction still hasn’t materialized.

The US dollar is selling off some of its gains after climbing to a near two-month high on declining yields on US Treasury bonds. In addition, the daily RSI was slightly overbought, which contributed to the USD/JPY long unwinding. Dollar losses are mitigated by expectations that the Fed would keep interest rates high for extended periods.

Prices in the market indicate another rate hike of 25 basis points from the FOMC in June. On Friday, the U.S. Department of Labor released its Core PCE Price Index, confirming the predictions of continuing inflation. The U.S. dollar should benefit from this and stimulate USD/JPY drop buying.

Meanwhile, Governor Kazuo Ueda of the Bank of Japan signaled the BOJ would keep lowering its yield curve control policy. Tokyo’s CPI fell more than expected in May. This allows the BoJ to keep its dovish posture and maintain its projection that Japan’s inflation will fall below 2% in the middle of the current fiscal year.

The safe-haven Japanese Yen (JPY) could be weakened by this and a bullish risk tone, limiting USD/JPY losses. U.S. senators have tentatively agreed to postpone the $31.4 trillion debt ceiling until January 25 to prevent a historic default by the world’s largest economy. Positive sentiment and capital outflows from safe-haven assets like the Japanese yen demonstrate how this boosts investor confidence.

The fundamental environment for the USD/JPY pair is bullish. Therefore, you should consider a significant correction of a purchasing opportunity and hedge accordingly. Later in the early North American session, traders can take advantage of short-term trading opportunities based on the Conference Board’s U.S. Consumer Confidence Index.

Trade Idea

Consider buying USD/JPY on potential pullbacks, targeting a retest of the recent six-month high. Monitor U.S. economic data releases and developments in U.S. debt ceiling negotiations for further confirmation.