The yen strengthened for three consecutive days, reaching a three-week high in Asian trading on Thursday, extending its gains from the previous two sessions. The Bank of Japan raised its inflation forecast in July and hinted at a possible interest rate hike before the end of the year, which contrasted sharply with market expectations of a September rate cut by the Federal Reserve, continuing to support the yen's strength.

Market analysts pointed out that the huge divergence between the Bank of Japan's policy stance and the Federal Reserve's easing expectations makes the low-yield yen still attractive in the current environment.

However, Japanese economic data performed poorly. Real wages fell for the sixth consecutive month in June, and the growth rate of the corporate goods price index (CGPI) slowed, raising concerns about the consumption-led economic recovery.

In addition, domestic political uncertainty and the potential impact of higher US tariffs have made the market cautious about the timetable for the Bank of Japan's policy normalization.

Despite this, the positive performance of global risk assets has not diminished the yen's safe-haven appeal. Japan's Nikkei 225 index broke through 43,000 points for the first time on Wednesday, while the S&P 500 and Nasdaq indices hit record highs for two consecutive days. Market risk appetite has rebounded, but yen bulls still have the upper hand.

Next, the market will focus on US PPI data and speeches by Federal Reserve officials to determine the direction of the US dollar. On Friday, Japan's preliminary second-quarter GDP data and the University of Michigan's consumer confidence index will become new focuses.

On the daily chart, USD/JPY has broken below its 200-day moving average (around 147.00), a key support level, suggesting bearishness. The RSI indicator is approaching oversold territory, suggesting a potential short-term technical rebound, but the 147.00 level has become a strong resistance level.

If the exchange rate continues to be under pressure, this resistance will be difficult to break through, and the further downward target will be below 146.00 (the low point on July 24), and may even extend to the 145.30 area, and finally fall to the psychological level of 145.00.

Editor's opinion:

Overall, the current USD/JPY trend is driven downward by both fundamental and technical factors. The Bank of Japan's hawkish outlook, coupled with expectations of a Fed rate cut, has given yen bulls an advantage. However, as technical indicators approach oversold levels, a short-term rebound and correction is possible, but the overall trend remains downward.