- The Japanese Yen holds steady as the Bank of Japan maintains its interest rate at 0.15% during Friday's meeting.
- Japan's Consumer Price Index climbed to 3.0% year-over-year in August, the highest level since October 2023.
- The US Dollar faces pressure from increasing expectations of further Fed rate cuts in 2024.
The Japanese Yen (JPY) remains stable against the US Dollar (USD) following the Bank of Japan's (BoJ) policy decision on Friday to keep its interest rate at 0.15%, as widely anticipated. Additionally, Japan's Consumer Price Index (CPI) rose to 3.0% year-on-year in August, up from 2.8%, marking the highest level since October 2023. The Core National CPI, excluding fresh food, also reached a six-month high of 2.8%, increasing for the fourth consecutive month and aligning with market expectations.
The downside pressure on the USD/JPY pair is bolstered by a weaker US Dollar, fueled by growing expectations for additional rate cuts by the US Federal Reserve (Fed) by the end of 2024. The latest dot plot projections indicate a gradual easing cycle, with the median rate for 2024 revised down to 4.375%, from a forecast of 5.125% in June.
However, Federal Reserve Chair Jerome Powell stated in the post-meeting press conference that the Fed is not in a rush to ease policy and emphasized that half-percentage point rate cuts are not the "new pace."
Daily Digest Market Movers: Japanese Yen Supported by Hawkish BoJ Policy Outlook
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US Treasury Secretary Janet Yellen stated on Friday that the recent interest rate cut by the Federal Reserve is a positive sign for the US economy. She highlighted that it reflects the Fed's confidence in significantly decreasing inflation, moving toward the 2% target, while the job market remains robust.
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The Federal Open Market Committee (FOMC) lowered the federal funds rate to a range of 4.75% to 5.0%, marking the Fed's first rate cut in over four years. Policymakers updated their quarterly economic forecasts, raising the median unemployment projection to 4.4% by the end of 2024, up from the previous estimate of 4.0%. They also increased the long-term forecast for the federal funds rate from 2.8% to 2.9%.
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Federal Reserve Chair Jerome Powell commented on the substantial 50 basis point rate cut, stating, “This decision reflects our increased confidence that, with the right adjustments to our policy approach, we can maintain a strong labor market, achieve moderate economic growth, and bring inflation down to a sustainable 2% level.”
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Japan’s Merchandise Trade Balance recorded a larger trade deficit of ¥695.30 billion in August, up from ¥628.70 billion the previous month, but significantly lower than market expectations of a ¥1,380.0 billion shortfall. Exports grew by 5.6% year-over-year for the ninth consecutive month, though this fell short of the anticipated 10.0%. Imports rose by just 2.3%, the slowest growth in five months, well below the projected 13.4%.
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Japanese Finance Minister Shunichi Suzuki expressed concerns about rapid foreign exchange fluctuations, stating that officials will closely monitor the effects of FX movements on the economy and citizens' livelihoods. The government will assess the implications of a stronger Japanese Yen and respond accordingly, according to Reuters.
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Commerzbank FX analyst Volkmar Baur anticipates that the Bank of Japan will remain on the sidelines this week. He noted that the Federal Reserve's actions are likely to have a more significant impact on the USD/JPY pair, suggesting the JPY could potentially fall below 140.00 per USD even without a rate hike from the BoJ,
Technical Analysis: USD/JPY Slips Toward 142.00; Further Downside Guided by 21-Day EMA
USD/JPY is trading around 142.30 on Friday. Daily chart analysis shows the pair consolidating within a descending channel, reinforcing a bearish outlook. The 14-day Relative Strength Index (RSI) remains below the 50 level, further confirming the ongoing bearish sentiment.
On the downside, immediate support for the USD/JPY pair is at 139.58, the lowest level since June 2023, followed by the lower boundary of the descending channel near 137.50.
On the resistance side, the 21-day Exponential Moving Average (EMA) at 143.56 serves as the initial barrier, with the upper boundary of the descending channel around 144.80 acting as the next level of resistance.
USD/JPY: Daily Chart
