The Japanese Yen gets nothing for a strong consumption print

On Monday, the USD/JPY exchange rate traded slightly below 160.00, decreasing by around 0.2% following an initial surge above the mark. The 50-day Exponential Moving Average (EMA) was precisely at 160.00 and has been falling since a late-July intervention, while the 200-day EMA remained at 158.00. On Sunday, Japan's retail figures for July came in at 23:50 GMT, showing a 4% year-over-year increase in retail trade, surpassing the 3% consensus and previous 0.6% growth.

The seasonally adjusted monthly series grew by 2.4% after a 3.9% contraction. Large Retailer Sales rose by 1.4%, reversing a 1% decline. These figures indicate the domestic demand evidence the Bank of Japan (BoJ) sought before any further action. The Yen's reward for meeting these expectations was a third of a Yen and a missed test of a round number.

The reason for this was not the data being ignored, but the lack of anyone left to convert. The September 18 decision was priced at 80% to 90% for weeks, and a heavily priced hike generated no additional buyers. On Sunday, United States forces targeted Iranian rocket launchers on Larak Island, marking the first acknowledged American strike on Iranian positions in a month.

In response, Tehran attacked US bases in Jordan. Crude Oil rose more than 2% following the escalation, while longer-dated Treasury yields followed suit. Japan imports nearly all its energy from the region, so a significant move affected Japanese consumer prices little. This has been the case throughout the year, with underlying inflation approaching its target and wholesale prices outpacing it.

The central bank that had failed to create inflation for a decade now has a majority arguing against it. The challenge lies in the same mechanism weakening the currency it aims to defend, as a larger import bill means more Yen sales. The Yen continues to be defended from below rather than abandoned at 160.00, due to American factors.

The Federal Reserve chair's Jackson Hole keynote on Friday increased aggregated futures probabilities for a September 16 increase to almost 65%, October to 92%, and left December with an even split between one increase and two. The BoJ's move to 1.25% is in stark contrast to the US target range of 3.75% to 4.00%, keeping the differential almost unchanged.

This differs from the market's previous state, when the Yen was in a tightening cycle that nobody was running. The late-July coordinated intervention lowered the pair from near 164.00 to just above 155.00, and four weeks of steady recovery brought it back to the handle. Every attempt above 160.00 has been sold, indicating a ceiling rather than a reversal.

The Group of Twenty (G20) finance ministers and central bank governors meet in Asheville, North Carolina on Monday and Tuesday, with Japanese representatives attending. US Treasury Secretary publicly supported higher Japanese rates to counter a weak currency, turning any comments into a live event risk. The numbers due are on the same day and all American.

The ISM Manufacturing Purchasing Managers Index (PMI) releases at 14:00 GMT, with the consensus at 55.2 and previous at 55.6. Prices paid are compared to 72 and 71.1, while Job Openings and Labor Turnover Survey (JOLTS) openings are against 7.3 million. Private payrolls follow on Wednesday, with a 47K consensus versus a 23K contraction and unemployment at 4.1%.

Average hourly earnings increase by 0.3% MoM. Resistance lies at 160.00, matching the 50-day EMA, explaining its persistent holding. Beyond this level, 160.50 and 161.00 are the next targets, followed by the pre-intervention range of 162.00 to 164.00. Support is at 159.50, on which the recovery would end if broken. The bullish bias suggests a higher probability outcome from the break above 160.00, as the differential argument intended to undermine the pair has been neutralized by the American side's revaluation.

However, momentum is a concern, as the oscillator at 80 has already exhausted its potential to push the price to the handle, requiring Friday's payrolls to fuel the break. Failure to close above 159.00 validates the downward bias.