The Japanese Yen continues to decline as the US Dollar remains strong ahead of the ISM Manufacturing PMI report

The Japanese Yen (JPY) continues to weaken for the second consecutive day following the release of the Bank of Japan's (BoJ) Summary of Opinions from September’s Monetary Policy Meeting, along with mixed economic data on Tuesday.

The summary reveals no immediate plans for further rate hikes, emphasizing a focus on stability and cautious communication. The BoJ aims to maintain its accommodative stance but is open to adjustments if economic conditions significantly improve.

Japan’s Tankan Large Manufacturing Index indicated that overall business conditions for large manufacturing companies remained stable at 13 points in the third quarter, aligning with expectations. Furthermore, Japan's unemployment rate dropped to 2.5% in August, down from 2.7% in July, surpassing market forecasts of 2.6%.

Additionally, dovish remarks from former Defense Chief Shigeru Ishiba, who is likely to be the country's next Prime Minister, are exerting downward pressure on the JPY and supporting the USD/JPY pair. Ishiba stated on Sunday that Japan's monetary policy should remain accommodative, highlighting the need to maintain low borrowing costs to bolster a fragile economic recovery, as reported by The Japan Times.

Daily Digest Market Movers: Japanese Yen Weakens Amid Growing Doubts Over BoJ Rate Hikes

• The US Dollar (USD) is gaining strength following recent remarks from Federal Reserve Chairman Jerome Powell on Monday. Powell stated that the central bank is not in a rush to make changes, indicating that it will lower its benchmark rate "over time." He emphasized that the recent 50 basis point interest rate cut should not be interpreted as a signal for similarly aggressive future actions, suggesting that upcoming rate adjustments are likely to be more modest.
• According to the CME FedWatch Tool, markets currently assign a 61.8% probability to a 25 basis point rate cut by the Federal Reserve in November, while the likelihood of a 50 basis point cut has decreased to 38.2%, down from 53.3% the previous day.
• In Japan, Retail Trade rose by 2.8% year-on-year in August, exceeding market expectations of 2.3% and slightly surpassing the upwardly revised 2.7% increase from the previous month. Month-over-month, seasonally adjusted Retail Trade saw a rise of 0.8%, marking the largest increase in three months, following a 0.2% gain in July.
• Japan's Chief Cabinet Secretary, Yoshimasa Hayashi, refrained from commenting on Monday's fluctuations in the stock market but underscored the importance of closely monitoring the domestic and international economic and financial situation with urgency. He also emphasized the need for ongoing collaboration with the Bank of Japan.
• St. Louis Federal Reserve President Alberto Musalem noted on Friday, as reported by the Financial Times, that the Fed should start cutting interest rates "gradually" after the larger-than-usual half-point reduction at the September meeting. He acknowledged the possibility of the economy weakening more than expected, suggesting that if that occurs, a faster pace of rate reductions might be necessary.
• The US Core Personal Consumption Expenditures (PCE) Price Index for August rose by 0.1% month-over-month, falling short of market expectations for a 0.2% increase and lower than the previous 0.2% rise. Year-over-year, the Core PCE increased by 2.7%, aligning with expectations and slightly above the prior reading of 2.6%.
• Meanwhile, the minutes from the BoJ's Monetary Policy Meeting on Thursday reflected a consensus among members regarding the need to remain vigilant about the risks of inflation exceeding targets. Some members indicated that raising rates to 0.25% would be appropriate to adjust the level of monetary support, while others suggested that a moderate adjustment to monetary support would also be suitable.

Technical Analysis: USD/JPY Surpasses 144.00, Nine-Day EMA

The USD/JPY pair is trading around 144.10 on Tuesday. Analyzing the daily chart reveals that the pair has re-entered an ascending channel pattern, suggesting that the bullish bias remains strong. The 14-day Relative Strength Index (RSI) is slightly below the 50 level; a breakout above this threshold could further confirm the continuation of the bullish trend.

Regarding resistance, the USD/JPY pair may target the upper boundary of the ascending channel at 146.50, followed by a five-week high of 147.21, reached on September 3.

On the downside, immediate support is located at the nine-day Exponential Moving Average (EMA) at the 143.51 level, with further support found at the lower boundary of the ascending channel around 142.80. A break below this level could push the USD/JPY pair towards the 139.58 region, the lowest point since June 2023.

USD/JPY: Daily Chart