- The Japanese Yen is falling despite the hawkish stance of the Bank of Japan’s policy outlook.
- The potential for further declines in the JPY may be restricted as traders anticipate additional interest rate hikes by the BoJ.
- US Fed Chair Powell has indicated a possible rate cut soon, which is exerting downward pressure on the US Dollar.
The Japanese Yen (JPY) continues to weaken against the US Dollar (USD) for the second consecutive day on Tuesday. However, the Yen's decline may be limited due to the hawkish stance of the Bank of Japan (BoJ).
The differing policy outlooks from the BoJ and the Federal Reserve (Fed) are contributing to the downward pressure on the USD/JPY pair. BoJ Governor Kazuo Ueda mentioned in Parliament on Friday that the central bank might raise interest rates further if its economic forecasts prove accurate.
In contrast, Fed Chair Jerome Powell remarked at the Jackson Hole Symposium that "the time has come for policy to adjust," though he did not provide specifics on the timing or magnitude of potential rate cuts. Additionally, San Francisco Federal Reserve President Mary Daly indicated in a Bloomberg TV interview on Monday that "the time is upon us" to start reducing interest rates, likely beginning with a quarter-percentage point cut.
Daily Digest Market Movers: Japanese Yen Declines Despite BoJ's Hawkish Stance
The CME FedWatch Tool indicates that the markets are fully anticipating a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting.
Japan’s Finance Minister Shunichi Suzuki stated on Tuesday that foreign exchange rates are influenced by a range of factors, including monetary policies, interest rate differentials, geopolitical risks, and market sentiment. He mentioned that predicting the impact of these factors on FX rates is difficult.
US Durable Goods Orders jumped by 9.9% month-over-month in July, recovering from a 6.9% decline in June. This increase far exceeded the anticipated 4.0% rise and marked the largest gain since May 2020.
According to Bloomberg, Philadelphia Fed President Patrick Harker emphasized the need for a gradual reduction in interest rates by the US central bank. Meanwhile, Reuters reported that Chicago Fed President Austan Goolsbee highlighted that current monetary policy is at its most restrictive, with the Fed now focusing on meeting its employment goals.
Bank of Japan (BoJ) Governor Kazuo Ueda addressed the Japanese parliament on Friday, stating that he is “not considering selling long-term Japanese government bonds (JGBs) as a tool for adjusting interest rates.” He noted that any reduction in JGB purchases would be minimal, affecting only about 7-8% of the balance sheet. Ueda also mentioned that if the economy aligns with their projections, there might be a slight further adjustment in interest rates.
Japan’s National Consumer Price Index (CPI) increased by 2.8% year-on-year in July, maintaining this rate for the third month in a row and reaching its highest level since February. The National CPI excluding Fresh Food rose by 2.7%, also the highest since February, in line with expectations.
The US Composite PMI fell to 54.1 in August from 54.3 in July, a four-month low but still above the forecast of 53.5. This indicates continued expansion in US business activity, marking 19 consecutive months of growth.
The FOMC Minutes from July’s policy meeting revealed that most Fed officials agree on the likelihood of a rate cut at the September meeting, provided that inflation continues to decrease.
Technical Analysis: USD/JPY Approaches Key Psychological Level of 145.00
USD/JPY is trading around 144.90 on Tuesday. Analysis of the daily chart indicates that the pair is testing a downtrend line, which suggests a weakening of the bearish momentum. However, the 14-day Relative Strength Index (RSI) remains just above 30, confirming the ongoing bearish trend.
If the USD/JPY pair remains below the downtrend line, it could stay near the seven-month low of 141.69 recorded on August 5. A drop below this level might drive the pair towards the support level at 140.25.
On the resistance side, the USD/JPY pair may face immediate resistance at the nine-day Exponential Moving Average (EMA) around 145.67. A breakthrough above this level could open the path for the pair to test the resistance area around 154.50.
USD/JPY: Daily Chart
