The Japanese Yen (JPY) continued its downward trajectory for the third consecutive trading day on Tuesday, largely influenced by a resilient US Dollar (USD) amidst investors’ cautious stance preceding the Federal Reserve’s (Fed) decision and US inflation figures due on Wednesday.
Mixed data from Japan on Monday failed to provide support for the Japanese Yen. While Japan’s Gross Domestic Product (GDP) Annualized revealed a contraction less severe than anticipated in the first quarter, the GDP (QoQ) mirrored flash data, showcasing a shrinkage in Q1. Furthermore, the stable performance of the equity market added pressure on the JPY, with investors eagerly awaiting the Bank of Japan’s (BoJ) policy decision scheduled for Friday.
The US Dollar Index (DXY), gauging the USD against six major currencies, maintained its strength amidst reduced expectations of two Federal Reserve interest rate cuts in 2024. The CME FedWatch Tool indicated a decline in the probability of a 25-basis point Fed rate cut in September to nearly 49.0%, down from 59.5% a week earlier.
Market Insights:
Economists surveyed in a Reuters poll anticipate that the Bank of Japan will likely initiate tapering its monthly bond purchases at Friday’s policy meeting, signaling the beginning of a gradual reduction in the central bank‘s balance sheet.
The Nikkei 225 Index witnessed gains for the second consecutive session on Tuesday, mirroring positive movements in Wall Street, particularly driven by technology stocks.
Japan’s Finance Minister Shunichi Suzuki emphasized the importance of sustaining economic growth and fiscal health to maintain confidence in the country’s fiscal policy.
Japan’s 10-year government bond yield surpassed 1.02% ahead of the Bank of Japan’s policy meeting, with traders closely monitoring potential adjustments in the bank’s monthly bond purchases.
Expert Views:
Rabobank suggests that the Federal Reserve might consider rate cuts in September and December, primarily due to a weakening economy rather than progress on inflation. They anticipate a stagflationary phase in the US economy, leading to a mild recession later in the year.
Bank of Japan (BoJ) Governor Kazuo Ueda, speaking to parliament, highlighted that while inflation expectations are gradually rising, they are yet to reach the target of 2%.
Technical Analysis:
USD/JPY trades around 157.20 on Tuesday, with a bullish inclination evident in the daily chart’s ascending channel pattern. The 14-day Relative Strength Index (RSI) above the 50 level indicates a bias towards upward momentum.
Key resistance lies at the psychological level of 158.00, potentially guiding the USD/JPY pair towards levels near 158.60. Further resistance is observed at 160.32, representing its highest level in over thirty years.
On the downside, primary support rests at the lower boundary of the ascending channel, around 154.90, coinciding with the 50-day Exponential Moving Average (EMA) at 154.86. A breach below this level may intensify downward pressure, directing the pair towards support near 152.80.
Conclusion:
The Japanese Yen’s decline against the US Dollar reflects market sentiment favoring the USD amidst anticipation of the Federal Reserve’s decision and US inflation data. With the Bank of Japan’s policy meeting looming and expert opinions suggesting potential adjustments in monetary policies, investors remain attentive to market dynamics for potential trading opportunities.
Related Topics:
Unraveling the Puzzle: Why JPY is Falling Against INR
U.S. Dollar and Japanese Yen: An Interesting Partnership
Uncovering the Reasons for the Strong Yen
