Dollar Gains Await FOMC Minutes

The US Federal Reserve’s last meeting minutes and US job numbers announcement are the most important events for the Forex currency market in general and for the US dollar in particular this week. The US dollar continues to achieve record gains against the rest of the other major currencies, and in the case of the USD/JPY currency pair, it moved towards its highest in 24 years. The currency pair is stabilizing around the 135.20 level at the time of writing the analysis, after gains towards the 137.00 resistance level.

The clear contrast between the future of global central bank policy tightening and economic performance between the US and Japan remains in favor of the overall bullish trend for the currency pair. The US Federal Reserve continues to confirm that it is determined to raise the US interest rate more times until the record inflation in the country is contained, and at the same time, the economic performance of the United States provides it with enough impetus to pass it.

On the other hand, the Japanese central bank is completely unlikely to follow in the same footsteps as global central banks, and is still providing more stimulus to the Japanese economy, which is suffering from the consequences of the epidemic and finally the Russian-Ukrainian war. And according to what was recently announced, Japan’s tax income for the year ending in March rose to a record high for the second year in a row, as corporate profits and incomes jumped amid the ongoing recovery from the epidemic.

Tax income for the most recent fiscal year was 67 trillion yen ($492 billion), according to a statement issued by Japan’s Ministry of Finance. With an unexpected big jump in sales and corporate tax revenue, total revenue increased about 10% from last year’s record high of 60.8 trillion yen. The positive numbers suggest that Japan’s recovery may be stronger than expected, and that less debt issuance may be required if tax revenue levels continue. However, the fee gains are not enough to reduce Japan’s debt mountain and the country will need to continue issuing government bonds to ensure that the social security system continues to be funded.

Sales tax income for the year ending in March was 21.9 trillion yen, up 900 billion yen from the previous year and hitting a record high. The ministry’s data showed that corporate tax increased to 13.6 trillion yen, while income tax rose to 21.4 trillion yen. For the year starting in April of this year, the government expects total revenue to be 65.2 trillion yen, but that figure may be revised upward if the trend continues last year.

The Finance Ministry also said that as a result of higher tax income levels, the government will issue 8 trillion yen less new government bonds.

I have often mentioned that after the recent and continuous record gains for the USD/JPY currency pair, this may be punctuated by the occurrence of profit-taking sell-offs, and then the currency pair will complete its natural course to the upside. As the technical indicators are still moving towards overbought levels, the markets have fully absorbed the factors of the US dollar’s gains. The closest targets for the bulls are currently 136.00, 136.85 and 138.00, respectively. On the other hand, according to the performance on the daily chart, the actual reversal of the general trend to the downside will not occur without breaching the 130.00 psychological support level. Otherwise, the general trend will remain bullish.