On Tuesday, the Japanese Yen (JPY) continued its decline, largely influenced by the strengthening US Dollar (USD). The USD/JPY pair traded near its lowest level since 1986, reaching 161.75. However, the Japanese government’s verbal intervention aims to mitigate further downside for the JPY.
Japanese Finance Minister Shunichi Suzuki emphasized vigilance over FX movements but refrained from specific comments on exchange rates. This stance is consistent with Japan’s policy to stabilize the currency amid volatile market conditions, as reported by Reuters.
The USD gained momentum, breaking a three-day losing streak, buoyed by rising US Treasury yields amidst expectations of a Federal Reserve interest rate adjustment in 2024. Market participants awaited insights from Federal Reserve Chairman Jerome Powell’s upcoming speech for further signals.
In economic indicators, a Reuters survey highlighted expectations of the Bank of Japan reducing its monthly bond purchases by approximately ¥100 billion (¥16.00 trillion annually) as part of a quantitative tightening plan. Initial adjustments could lower monthly purchases to around ¥4.65 trillion, with further reductions anticipated in subsequent years.
Commentary from OCBC strategists noted the potential for Japanese intervention due to USD/JPY nearing historic highs, emphasizing concerns over volatility rather than specific exchange levels.
US economic data revealed a decline in the Manufacturing Purchasing Managers Index (PMI) to 48.5 in June, indicating a third consecutive month of contraction. Conversely, Japan’s Tankan Large Manufacturing Index improved to 13, reflecting optimism in the country’s economic outlook.
Technically, USD/JPY maintained bullish momentum above 161.50, supported by an ascending channel pattern on daily charts. However, caution is advised as the 14-day Relative Strength Index (RSI) signals overbought conditions, suggesting a potential correction.
Key levels to watch include resistance near 162.00 if the pair breaches 161.70, while support rests at the nine-day Exponential Moving Average (EMA) around 160.38. A break below this EMA level could drive USD/JPY towards the lower boundary of the ascending channel at approximately 158.50, with further downside potentially testing June’s low at 154.55.
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