In the Asian session on Friday, the Japanese yen strengthened on the support of strong economic data, and the US dollar against the Japanese yen ended the previous day's sharp rise and fell.

Japan's GDP grew by 0.3% quarter-on-quarter in the second quarter, with an annualized growth rate of 1.0%, higher than the market expectation of 0.4% and much better than the previous quarter's -0.2%.

Data showed that Japan's economy still achieved unexpected growth despite pressure from US tariffs, which consolidated the market's confidence in the Bank of Japan to continue to promote policy normalization.

Japanese Economy Minister Ryomasa Akazawa said the data showed the economy was recovering moderately, but caution was needed about the impact of U.S. trade policies and rising prices on consumption.

Despite this, the market remains divided on the timing of the Bank of Japan's rate hike, primarily due to domestic political uncertainty, slow consumer recovery, and the risk of US tariffs. However, compared with expectations that the Federal Reserve may cut interest rates multiple times this year, the Bank of Japan's relatively hawkish stance still favors the low-yielding yen, attracting capital inflows.

In the United States, data from the Bureau of Labor Statistics showed that the Producer Price Index (PPI) rose 3.3% year-on-year in July, exceeding expectations of 2.5% and significantly faster than the previous reading of 2.4%. This result weakened expectations of aggressive interest rate cuts by the Federal Reserve, which had previously been strengthened by the moderate CPI, causing the US dollar to surge by nearly 200 points in the short term, pushing the USD/JPY close to the 148.00 mark.

Analysts pointed out that the strong performance of PPI suggests that US inflation may rise again, but expectations of interest rate cuts still dominate the medium-term trend of the US dollar.

The market currently expects that the probability of the Federal Reserve cutting interest rates by 25 basis points in September is about 90%, and it is expected to cut interest rates at least twice before the end of the year, which puts some pressure on the US dollar.

In addition, US President Trump and Russian President Putin will meet in Alaska to discuss solutions to end the conflict in Ukraine. The relevant news is expected to affect risk aversion sentiment, thereby fluctuating the yen.

The upcoming release of US retail sales, New York Fed manufacturing index, University of Michigan consumer confidence and inflation expectations data, as well as speeches by Fed officials, may all bring short-term fluctuations to the foreign exchange market.

Looking at the daily chart, after rebounding at 146.20, USD/JPY encountered resistance at the 148.00 mark (corresponding to the 38.2% Fibonacci retracement level from the 151.00 high), which became a short-term watershed between bulls and bears.

If it effectively breaks through 148.00, it will be expected to rise to 148.60 (50% retracement level) and further challenge the 149.00 integer mark; conversely, if it falls below the 147.00 support, it will retest the 146.20 low. Once 146.00 is lost, the downward target may extend to 145.30 or even the psychological mark of 145.00.

Editor's opinion:

The yen is currently in a tug-of-war between bulls and bears, both on fundamental and technical ground. Strong Japanese economic data and the Bank of Japan's hawkish outlook are supporting the yen, but an unexpected rebound in US inflation and a short-term rebound in the US dollar are offsetting the yen's performance. The key question is whether the 148.00 resistance level can be broken. If this fails, the range-bound pattern may continue into next week.