The Japanese Yen (JPY) retraced its recent gains on Thursday after strengthening against the US Dollar (USD) due to suspected intervention by Japanese authorities, which drove the USD/JPY pair to a one-month low of 155.36. Traders remain vigilant to the possibility of further interventions.
Potential for Further Interventions
According to Reuters, Japan’s top currency diplomat Masato Kanda indicated on Wednesday that authorities would respond to “excessive” currency market movements and that there is no limit to the frequency of potential interventions. This statement follows recent suspected actions that temporarily boosted the yen.
US Dollar Supported by Treasury Yields and Fed Expectations
The US Dollar found support from a slight improvement in US Treasury yields. However, the greenback’s upside might be capped by the high likelihood of a rate cut by the Federal Reserve (Fed) in its September policy meeting. Fed Governor Christopher Waller stated on Wednesday that the US central bank is “getting closer” to an interest rate cut. Meanwhile, Richmond Fed President Thomas Barkin noted that inflation easing had begun to broaden, expressing hope for its continuation.
According to CME Group’s FedWatch Tool, the probability of a 25-basis point rate cut at the September Fed meeting has risen to 93.5%, up from 69.7% a week earlier.
Market Movers: Japanese Yen and US Dollar Dynamics
Japan’s Merchandise Trade Balance for the year ending in June climbed to a surplus of ¥224 billion, defying expectations of a ¥240 billion deficit and significantly improving from the prior ¥1,220.1 billion deficit. Despite this, Japan’s year-on-year exports in June grew by only 5.4%, falling short of the forecasted 6.4% and sharply down from the previous period’s 13.5% growth. Import growth also collapsed to 3.2%, well below the forecast 9.3% and the prior period’s 9.5%.
Former President Donald Trump, during a Tuesday interview with Bloomberg News, advised Fed Chair Jerome Powell against cutting US interest rates before the November presidential election. However, Trump suggested that he would allow Powell to complete his term if he continued to “do the right thing” at the Federal Reserve.
Data released on Tuesday showed the Bank of Japan (BoJ) entered the foreign exchange market on consecutive trading days last Thursday and Friday. The BoJ’s current account balance data indicated an anticipated liquidity drain of approximately ¥2.74 trillion ($17.3 billion) from the financial system on Wednesday due to various government sector transactions.
Federal Reserve Board of Governors member Dr. Adriana Kugler acknowledged on Tuesday that inflationary pressures have eased but emphasized the need for more data before justifying a rate cut. Kugler noted that if upcoming data does not confirm inflation is moving toward the 2% target, maintaining current rates might be appropriate.
Technical Analysis: USD/JPY Above 156.00
On Thursday, the USD/JPY pair traded around 156.30. Technical analysis suggests that the pair lies below its 9-day Exponential Moving Average (EMA), indicating short-term downward momentum. The 14-day Relative Strength Index (RSI) is below the 50 level, confirming a bearish bias.
Key support for the USD/JPY pair could be found around June’s low at 154.55. A break below this level might push the pair toward May’s low at 151.86. On the upside, immediate resistance is around the 9-day EMA at 158.27. A breakthrough above this level could lead the pair to test the psychological resistance at 162.00.
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