The Japanese Yen (JPY) witnessed a modest uptick following the Bank of Japan‘s (BoJ) announcement on Thursday, maintaining the same levels of Japanese government bonds (JGB) as in previous operations. This decision comes after the BoJ reduced the amount of 5-10 year bonds it purchased in a scheduled operation over a month ago.
However, the JPY refrained from reacting positively to the Purchasing Managers Index (PMI) data from Japan, which revealed that private sector growth reached a nine-month high in May, driven by a resurgence in manufacturing activity.
Meanwhile, the US Dollar (USD) remained resilient ahead of Thursday’s US PMI data, bolstered by gains made on Wednesday following the release of minutes from the latest Federal Open Market Committee (FOMC) policy meeting. Federal Reserve (Fed) policymakers expressed concerns about sluggish progress on inflation, prompting caution regarding potential interest rate cuts.
Japanese Yen Steady Amid US PMI
The assumption of office by Lai Ching-te as Taiwan’s new president has intensified tensions, with reports from Chinese state media suggesting increased military activity, including simulated strikes, in the Taiwan Strait and surrounding areas controlled by Taiwan.
Additionally, Japan’s Manufacturing Purchasing Managers Index (PMI), compiled by Jibun Bank and S&P Global, rose to 50.5 in May, surpassing market expectations and marking the first growth since May 2023. However, the Services PMI fell slightly to 53.6, albeit still indicating robust expansion.
On the economic front, Japan’s Merchandise Trade Balance for April revealed an increased deficit of ¥462.5 billion, attributed to the depreciation of the JPY, which inflated import costs, overshadowing gains from higher exports.
Moreover, Japan’s 10-year government bond yield exceeded 1% on Wednesday for the first time since May 2013, fueled by speculation of further policy tightening by the Bank of Japan in 2024.
According to the CME FedWatch Tool, the probability of a 25 basis-point rate cut by the Federal Reserve in September saw a slight decline to 50.7%, compared to 51.6% the previous day. Federal Reserve Bank of Boston President Susan Collins underscored the necessity for patience regarding interest rate adjustments in a post-pandemic financial landscape.
USD/JPY Consolidates Above 156.50 Level
The USD/JPY pair traded around 156.70 on Thursday, exhibiting a potential bearish turn as indicated by a rising wedge pattern on the daily chart. Despite this, the 14-day Relative Strength Index (RSI) remains marginally above the 50 mark, suggesting ongoing momentum.
In the event of an upward movement, the pair could retest the upper boundary of the rising wedge near the psychological barrier at 157.00, potentially targeting the recent high of 160.32 upon a breakout.
Conversely, immediate support lies at the lower threshold of the rising wedge, followed by the 21-day Exponential Moving Average (EMA) at 155.49. A breach below this level could exert downward pressure, leading to a test of the throwback support at 151.86.
