The Japanese Yen (JPY) staged a recovery on Thursday, reversing recent losses following remarks from Bank of Japan (BoJ) board member Seiji Adachi on Wednesday. Adachi’s commentary emphasized a gradual reduction in bond purchases to ensure long-term yields accurately reflect market signals. Moreover, he suggested that raising interest rates might be appropriate if a weaker JPY leads to inflationary pressures, as reported by Reuters.
Market sentiment shifted as traders increased bets on the possibility of the Bank of Japan (BoJ) implementing another interest rate hike. Attention now turns to Tokyo’s forthcoming inflation data, slated for release on Friday, viewed as a pivotal indicator of nationwide price trends.
Hawkish rhetoric from Minneapolis Fed President Neel Kashkari further heightened concerns about potential rate hikes, maintaining a significant yield gap between the US and Japan. This climate continues to nurture JPY carry trades, wherein investors leverage the low-interest Japanese Yen to invest in higher-yielding US Dollar assets.
The US Dollar (USD) saw gains driven by elevated US Treasury yields, partly fueled by increased risk aversion ahead of Thursday’s release of US Gross Domestic Product Annualized (Q1) data. Additionally, market participants are poised to scrutinize the Core Personal Consumption Expenditures (PCE) Price Index data scheduled for Friday, anticipated to provide insights into the Federal Reserve’s stance on interest rate adjustments.
Key Market Developments:
According to Bloomberg, Federal Reserve Bank of Atlanta President Raphael Bostic highlighted on Thursday that the path of inflation is expected to be uneven, emphasizing that a decline in inflation breadth would bolster confidence in the necessity of a rate cut.
The Fed Beige Book report released on Wednesday covering the period from April to mid-May indicated slight growth in national economic activity, with varying conditions across industries and districts. The report noted slight employment growth, moderate wage growth, and modest price increases as consumers resisted further price hikes.
Reuters reported remarks from Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, hinting at the possibility of a rate hike. Kashkari expressed doubts about the disinflationary trend and projected only two rate cuts.
Tuesday’s US Housing Price Index (MoM) for March underperformed expectations, registering 0.1% against 1.2% for February, falling short of the anticipated 0.5%.
Japan’s Weighted Median Inflation Index, a crucial gauge of the country’s trend inflation, increased by 1.1% in April, marking a slowdown from the 1.3% increase in March.
Japan’s Corporate Service Price Index (CSPI) posted a year-over-year reading of 2.8% in April, surpassing expectations of 2.3% and marking its fastest increase since March 2015.
Japan Finance Minister Shun’ichi Suzuki emphasized on Tuesday the importance of currencies reflecting fundamentals and moving in a stable manner, stating close monitoring of foreign exchange (FX) movements. However, Suzuki refrained from commenting on whether Japan has conducted currency intervention.
USD/JPY Consolidates Near 157.00
The USD/JPY pair traded around 157.10 on Thursday, showcasing a symmetrical triangle pattern on the daily chart, indicative of a temporary pause in the prevailing bullish trend. Despite this consolidation, the 14-day Relative Strength Index (RSI) remains above 50, affirming a bullish bias.
Potential upside movements could see the USD/JPY pair testing the upper boundary of the symmetrical triangle, followed by the psychological level of 158.00. A breach above this level may target 160.32, representing its highest point in over three decades.
Conversely, immediate support is observed around the psychological level of 157.00, followed by the nine-day Exponential Moving Average (EMA) at 156.86. Further downward pressure might test the lower boundary of the symmetrical triangle.
