The Japanese Yen (JPY) continued its slide against the US Dollar (USD) for a second consecutive day on Tuesday as traders exercised caution ahead of the Bank of Japan’s (BoJ) policy meeting on Wednesday. Speculation is rife that the BoJ may increase interest rates by ten basis points to 0.1% and announce plans to taper bond purchases.
Chief Cabinet Secretary Yoshimasa Hayashi reassured on Tuesday that the BoJ and the government would closely coordinate efforts, though the specifics of monetary policy remain under the BoJ’s jurisdiction. Hayashi emphasized that the BoJ would implement appropriate measures to achieve the inflation target in close collaboration with the government.
Meanwhile, the US Dollar faces potential hurdles as the US Federal Reserve (Fed) is expected to keep interest rates unchanged on Wednesday. However, traders are anticipating a Fed rate cut in September, with the CME FedWatch Tool indicating a 100% probability of at least a quarter percentage point cut. Signs of cooling inflation and easing labor market conditions in the US have bolstered expectations of three rate cuts by the Fed this year.
Market Highlights: Yen Weakens Despite BoJ’s Hawkish Signals
Japan’s unemployment rate fell to 2.5% in June, slightly below the forecast of 2.6% and the previous four months’ rate, marking the lowest jobless rate since January. Japan’s top council has urged the government and the BoJ to consider the weak JPY when shaping policy, highlighting the impact of a weak Yen and rising prices on consumption.
A Reuters article on the BoJ’s policy review indicated a significant shift towards readiness for higher rates, although the review won‘t alter the price goal or policy framework. The US Personal Consumption Expenditures (PCE) Price Index rose by 2.5% year-over-year in June, down slightly from 2.6% in May, in line with market expectations. Monthly, the PCE Price Index edged up by 0.1% after being flat in May.
Japan’s top currency diplomat, Masato Kanda, informed the G20 that FX volatility adversely affects the Japanese economy, stressing the need for careful monitoring and necessary measures to ensure stability. Bank of America suggested that strong economic growth in the US allows the Federal Open Market Committee (FOMC) to delay rate changes, expecting the Fed to start cutting rates in December. Meanwhile, BlackRock and JP Morgan have both forecasted no rate hike from the BoJ in July or throughout 2024.
Technical Analysis: USD/JPY Nears 154.00
USD/JPY traded around 154.00 on Tuesday, consolidating within a descending channel that indicates a bearish trend. The 14-day Relative Strength Index (RSI) is slightly above 30, suggesting a potential short-term rebound.
Immediate support is near the lower boundary of the descending channel at around 153.00. A decline below this level could drive the pair lower, possibly revisiting May’s low of 151.86, with additional support at the psychological level of 151.00.
On the upside, the pair tests resistance at around 154.50. Further resistance is anticipated at the nine-day Exponential Moving Average (EMA) of 155.13, with additional resistance near the upper boundary of the descending channel around 156.20.
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