Throughout this week's trading, the price of the USD/JPY currency pair is in a strong upward retracement path, benefiting from the Japanese central bank maintaining its negative interest policy, while the US dollar continued to tighten the US Federal Reserve's policy. The gains of the current rebound for the USD/JPY pair extended to the resistance level at 143.88, its highest in almost a month, and it settled around the level of 143.35 at the time of writing the analysis.
The gains of the US dollar were not affected much by the downgrade of the credit rating this week. Late Tuesday, Fitch Ratings became the second of three major credit rating firms to remove its top-notch rating of the US government's creditworthiness, a move that has sparked controversy in Washington over its spending and tax policies.
Fitch cited the federal government's growing debt burden and the US government's political difficulties in addressing its spending and tax policies as the main reasons for downgrading its rating from AAA to AA+.
Fitch said its decision "reflects the expected financial deterioration over the next three years, the high and increasing overall government debt burden, and the erosion of governance" compared to other countries with similar debt ratings.
A credit downgrade may have little impact on financial markets in the long run or on the interest rates that the US government will pay. Fitch's move comes just weeks after the White House and Congress resolved a standoff over raising the government borrowing limit. A deal reached in late May suspended the debt limit for two years and cut spending by about $1.5 trillion over the next decade. The agreement came after negotiations approached a deadline after which Treasury Secretary Janet Yellen warned the government not to default on its debt.
The Biden administration reacted angrily to the move. Yellen said Wednesday that Fitch's "flawed assessment is based on outdated data and does not reflect improvements across a range of indicators, including those relating to governance, that we have seen over the past two and a half years."
"Despite the stalemate, we've seen both parties come together to pass legislation to resolve debt limits," Yellen added.
USD/JPY Technical Outlook
As I mentioned before, the upward rebound of the USD/JPY currency pair may remain in place until the announcement of US job numbers tomorrow, which will have a direct impact on the future of the US Federal Reserve's policy. Currently, the closest resistance levels for the currency pair are 143.85, 144.20, and 145.30, respectively. It is enough to push the technical indicators towards strong overbought levels. The general trend of the currency pair is still bullish. The continued divergence of the policy of the Bank of Japan and the Federal Reserve Bank may guarantee the bulls the opportunity to remain in control.
On the other hand, according to the performance on the daily chart, the USD/JPY currency pair will not abandon the upward path without moving toward the support level of 138.80 again.
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