- The Japanese Yen could face challenges as Prime Minister Shigeru Ishiba advocates for maintaining an accommodative monetary policy.
- Japan's Retail Trade increased by 2.8% year-over-year in August, exceeding the expected rise of 2.3%.
- The monthly US Core PCE Price Index for August has strengthened the likelihood of an aggressive Fed rate-cutting cycle.
The Japanese Yen (JPY) strengthens against the US Dollar (USD) on Monday. However, the JPY faces downward pressure from dovish remarks made by Japan's upcoming Prime Minister, former Defense Chief Shigeru Ishiba. Ishiba stated on Sunday that the country’s monetary policy should remain accommodative, emphasizing the need to keep borrowing costs low to support a fragile economic recovery, according to The Japan Times.
Japan's Retail Trade rose by 2.8% year-on-year in August, surpassing market expectations of 2.3% and slightly exceeding the upwardly revised 2.7% increase from the previous month. On a month-over-month basis, seasonally adjusted Retail Trade grew by 0.8%, marking the largest gain in three months, following a 0.2% rise in July.
The US Dollar has also come under pressure following Friday’s data on the US Core Personal Consumption Expenditures (PCE) Price Index for August, which aligns with the Federal Reserve's inflation outlook. This has bolstered expectations for an aggressive rate-cutting cycle by the central bank.
According to the CME FedWatch Tool, markets are now assigning a 42.9% probability to a 25-basis-point rate cut by the Federal Reserve in November, while the likelihood of a 50-basis-point cut has increased to 57.1%, up from 50.4% a week ago.
Daily Digest Market Movers: Japanese Yen Faces Downward Pressure from Uncertainty Over BoJ Policy Outlook
- Japan's Chief Cabinet Secretary, Yoshimasa Hayashi, refrained from commenting on the daily fluctuations of the stock market on Monday. He emphasized the need for close monitoring of both domestic and international economic and financial conditions with a sense of urgency, highlighting the importance of ongoing collaboration with the Bank of Japan (BoJ).
- St. Louis Federal Reserve President Alberto Musalem stated on Friday that the Fed should begin cutting interest rates "gradually" following a larger-than-usual half-point reduction at the September meeting. He acknowledged the possibility of the economy weakening more than anticipated, suggesting that a faster pace of rate reductions might be appropriate if that were the case.
- The US Core Personal Consumption Expenditures (PCE) Price Index for August increased by 0.1% month-over-month, falling short of market expectations of a 0.2% rise and lower than the previous 0.2% increase. Year-over-year, the Core PCE rose by 2.7%, matching expectations and slightly above the prior reading of 2.6%.
- In Japan, the Tokyo Consumer Price Index (CPI) rose 2.2% year-over-year in September, down from a 2.6% increase in August. The CPI excluding fresh food and energy climbed 1.6% year-over-year in September, unchanged from the previous reading. The CPI excluding fresh food increased 2.0%, as expected, compared to the prior rise of 2.4%.
- According to the US Bureau of Economic Analysis (BEA), the Gross Domestic Product (GDP) Annualized increased at a rate of 3.0% in the second quarter, as previously estimated, with the GDP Price Index rising by 2.5% during the same period.
- On Thursday, the minutes from the BoJ Monetary Policy Meeting indicated a consensus among members on the need to remain vigilant regarding inflation risks exceeding targets. Some members suggested that raising rates to 0.25% would be suitable to adjust monetary support levels, while others advocated for a moderate adjustment to support.
- Last week, BoJ Governor Kazuo Ueda signaled that the central bank has time to assess market and economic conditions before making any policy adjustments, indicating no urgency to raise interest rates again. He also noted that Japan's real interest rate remains deeply negative, which is aiding in stimulating the economy and driving up prices.
Technical Analysis: USD/JPY Holds Above 142.00 After Breaking Below the Ascending Channel
The USD/JPY pair is trading around 142.20 on Monday. Analyzing the daily chart reveals that the pair has broken below the ascending channel pattern, indicating a shift in momentum from bullish to bearish. Additionally, the 14-day Relative Strength Index (RSI) is positioned below the 50 level, reflecting prevailing bearish sentiment.
In terms of support, the USD/JPY pair may find levels around 139.58, marking its lowest point since June 2023.
On the upside, a return to the ascending channel could weaken the bearish outlook and enable the USD/JPY pair to test the nine-day Exponential Moving Average (EMA) at the 143.10 level. A decisive break above this level could allow the pair to approach the upper boundary of the ascending channel at 146.20, followed by the five-week high of 147.21, reached on September 3.
USD/JPY: Daily Chart
