Strong Japanese GDP - not to be ignored!
Amid the panic in the USD markets, the Japanese data overnight has been getting second billing. Growth in Q2 was markedly better and the BoJ will be looking on with some content given their uber accommodative policy is paying some dividends in some way. Even so, inflation is their primary goal and until this picks up, there is little chance the central bank will ease up on their policy as much as some officials are concerned over the ballooning balance sheet (buying JGBs).
Fears that they may try to rein in some of the asset purchasing are likely to simmer once again and this may give the JPY some more support. We have seen strong gains in the crosses with EUR/JPY and GBP/JPY notable movers lately as well as NZD/JPY in particular, though we now wait to see whether this can filter through into USD/JPY. As traders continue to view the USD as the leading destination, it is likely to be a slow grind lower for now, though when USD appetite starts to wane - perhaps later this year - we expect to see much lower levels here particularly.
The daily risk-off mode will also add a bid tone to the JPY, and this may pick up once US markets are open. Given EUR/USD losses have been prominent, EUR/JPY losses extending through 128.00 look pretty significant, but we have some strong support at current levels. Next is 125.50 if we go through.
USD/JPY in the meantime is finding buyers again ahead of 110.50, but a clean break of this level could see 109.00 pretty quickly. 108.00 is the next major level after that.