- The Japanese Yen faces downward pressure as traders anticipate a delay in further rate hikes by the Bank of Japan (BoJ).
- The BoJ Meeting Minutes revealed a consensus among members on the importance of remaining vigilant about inflation risks.
- Traders are looking forward to the release of the U.S. Gross Domestic Product Annualized for the second quarter, set to be announced on Thursday.
The Japanese Yen (JPY) remains subdued against the US Dollar (USD) following the release of the Bank of Japan’s (BoJ) minutes from its July policy meeting on Thursday. The JPY is facing challenges as traders anticipate that the BoJ will take a cautious approach before implementing further rate hikes.
The BoJ Monetary Policy Meeting Minutes indicated a consensus among members on the necessity of staying vigilant regarding the risks of inflation exceeding target levels. Several members noted that raising rates to 0.25% could be an appropriate measure to adjust the level of monetary support, while others suggested that a moderate adjustment to monetary policy might also be suitable.
Meanwhile, the US Dollar is experiencing downward pressure due to increasing expectations of further interest rate cuts by the US Federal Reserve (Fed) in upcoming meetings. According to the CME FedWatch Tool, markets are pricing in approximately a 50% chance that the Fed will reduce rates by a total of 75 basis points to a range of 4.0-4.25% by the end of the year.
Traders are now focused on the release of the final US Gross Domestic Product (GDP) Annualized for the second quarter (Q2), scheduled for later today. Additionally, Tokyo’s inflation data, set to be released on Friday, will be closely monitored for insights into the economic outlook and potential monetary policy actions by the Bank of Japan.
Daily Digest Market Movers: Japanese Yen Depreciates Amid Concerns Over BoJ Delaying Rate Hikes
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Federal Reserve Governor Adriana Kugler expressed strong support on Wednesday for the Fed's decision to cut interest rates by half a point last week. She indicated that further rate cuts could be appropriate if inflation continues to ease as anticipated, according to Bloomberg.
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Federal Reserve Governor Michelle Bowman stated on Tuesday that key inflation indicators remain "uncomfortably above" the 2% target, urging caution as the Fed approaches future interest rate cuts. Despite this, she favors a more conventional approach, advocating for a quarter percentage point reduction.
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The U.S. Consumer Confidence Index fell to 98.7 in September, down from a revised 105.6 in August, marking the largest decline since August 2021.
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On Tuesday, BoJ Governor Kazuo Ueda indicated that the central bank has the time to assess market and economic conditions before making any policy changes, signaling no immediate urgency for further rate hikes. He also mentioned that Japan's real interest rate remains deeply negative, which is aiding in stimulating the economy and driving up prices.
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Minneapolis Fed President Neel Kashkari stated on Monday that he anticipates additional interest rate cuts in 2024, though he expects these future cuts to be smaller than the recent one from the September meeting, as reported by Reuters.
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Chicago Fed President Austan Goolsbee noted that "many more rate cuts are likely needed over the next year," emphasizing that rates need to come down significantly. Atlanta Fed President Raphael Bostic added that the U.S. economy is approaching normal rates of inflation and unemployment, and the central bank should work towards "normalizing" monetary policy, per Reuters.
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Japan's new "top currency diplomat," Atsushi Mimura, stated in a recent interview with NHK that Yen carry trades accumulated in the past have likely been mostly unwound. He warned that a resurgence in such trades could lead to increased market volatility, assuring that "we are always monitoring the markets to ensure that does not happen."
Technical Analysis: USD/JPY Breaks Above the Descending Channel, Approaches 145.00
The USD/JPY pair is currently trading around the 145.00 mark on Thursday. Daily chart analysis indicates that the pair has successfully breached the descending channel, suggesting a potential weakening of the previous bearish bias. Furthermore, the 14-day Relative Strength Index (RSI) has climbed above the 50 level, signaling a shift in momentum from bearish to bullish sentiment.
On the upside, the USD/JPY pair may aim for the six-week high of 149.40.
For support levels, the pair may first test the immediate upper boundary of the descending channel around the 144.00 level, followed by the nine-day Exponential Moving Average (EMA) at 143.62. A retreat back into the descending channel would reinforce the bearish bias and could lead the pair to target the 139.58 region, which represents the lowest point since June 2023.
USD/JPY: Daily Chart
