USD/JPY has launched a relishes moment ahead of the U.S. Federal Reserve led markets to bring forward the likely timing of a policy tightening there, while action in Europe and Japan remain distant prospects. The yen pair portrayed a strong recovery after the previous day in May, with the US dollar benefiting from a volatile mood and concerns of tightening monetary policy. And also the pair reacted to the yesterday Japan’s services sector activity and expanding the nationwide lock down restrictions in Tokyo and five prefectures.

The US dollar rally came out after Fed Vice Chair Richard Clarida said conditions for an interest rate hike could be met in late 2022, setting the stage for a move in early 2023. He and three other Fed members also signalled a move to taper bond buying later this year or early next depending on how the labour market fared in the next few months.

On the other hand, the main currency pair went towards the yesterday services sector activity report. Japan’s services sector activity has shrunk fast for the 18th month of July, because the Corona virus is a blow to business activities and confidence to fight the rebellion of the coronavirus infections. The spread of the Corona virus has undermined the rescue opportunities of the world’s third largest economy by hurting hopes, sales, functions and also new business visits have shrunk fast.

The final au Jibun Bank Japan Services Purchasing Managers’ Index (PMI) dropped to a seasonally adjusted 47.4 from the previous month’s final 48.0 level, and compared with a 46.4 flash reading. The reading marked the 18th month that services activity came in below the 50.0 threshold that separates contraction from expansion, the longest such streak since a 27-month run through March 2010.

The president of the Japanese government on the Corona virus insisted to expand the current emergency of the country across the country. Omi Shigeru said in a Lower House committee meeting on Wednesday that the Delta variant is definitely a factor in the ongoing surge of infections. Tokyo and five provinces are under the state of emergency level and the western prefecture of Osaka, posing further potential headwinds to services sector activity ahead. But the survey still showed firms remained optimistic about conditions for the 12 months ahead, though they were slightly less positive than in the previous month.

Omi said that the nationwide emergency should be announced, if the government should discuss what measures should be taken. Japan also lifted the ban on poultry and egg exports from Ukraine imposed last year due to the spread of highly pathogenic avian influenza. The Ministry of Foreign Affairs of Ukraine informs that “On August 2, Japan lifted the ban on poultry and egg exports from Ukraine which was imposed in December last year due to the spread of highly pathogenic avian influenza in Ukraine,”

USD/JPY 4 Hour Chart:

Support: 108.90 (S1), 108.33 (S2), 107.95 (S3).

Resistance: 109.85 (R1), 110.24 (R2), 110.81 (R3).

Amidst this above catalysts the yen is on downtrend today. We expect a bullish trend for USD/JPY.