The Japanese Yen (JPY) rebounded against the US Dollar (USD) on Thursday, erasing its earlier losses. The USD/JPY pair received a boost following comments from Bank of Japan (BoJ) Deputy Governor Shinichi Uchida, who stated, “We won’t raise rates when markets are unstable,” according to Reuters.
The BoJ’s Summary of Opinions from the Monetary Policy Meeting on July 30-31 revealed that several members believe economic activity and prices are progressing as expected. The BoJ aims for a neutral rate of “at least around 1%” as a medium-term target.
The Yen’s downside could be limited due to heightened risk-off sentiment amid escalating Middle East tensions. US intelligence officials indicated that Iran and its allies are preparing for possible retaliation against Israel after the recent killings of a senior Hezbollah commander in Lebanon and a top Hamas leader in Tehran, reported by CNN.
The USD faces pressure as traders anticipate a deeper rate cut by the US Federal Reserve (Fed) in September. The CME FedWatch tool indicates a 72.0% probability of a 50-basis point rate cut in September, up from 11.8% a week earlier.
Market Movers: Japanese Yen Under Pressure Following BoJ’s Uchida Comments
Japan’s Finance Minister Shunichi Suzuki remarked on Thursday that he is “closely watching volatile stock movements but is not in the phase of taking actual action.” He emphasized that monetary policy decisions are the BoJ’s responsibility, while they continue to monitor market developments, according to Reuters.
Japan’s Current Account surplus decreased to ¥1,533.5 billion ($10.47 billion) in June, down from ¥2,849.9 billion the previous year, and below market expectations of ¥1,790 billion.
BoJ Deputy Governor Uchida also noted that the BoJ’s interest rate strategy will adapt if market volatility affects economic forecasts or risk assessments. He stressed the need for careful monitoring, stating, “We must maintain the current degree of monetary easing for the time being.”
Japan’s Chief Cabinet Secretary Yoshimasa Hayashi said on Tuesday that wage increases are expected to extend to part-timers and small businesses by autumn, supported by strong Shunto results and minimum wage hikes.
Japan’s Labor Cash Earnings data showed a 4.5% year-on-year increase in average income for June, the highest since January 1997, reinforcing Japan’s move toward a rising interest rate environment.
Federal Reserve Bank of San Francisco President Mary Daly expressed confidence that US inflation is moving toward the Fed’s 2% target, indicating openness to possible rate cuts in upcoming meetings, according to Reuters.
Minutes from the BoJ’s June meeting showed concerns about rising import prices due to the Yen’s decline, posing an upside risk to inflation. One member noted that cost-push inflation could intensify underlying inflation if it raises inflation expectations and wages.
Technical Analysis: USD/JPY Consolidates Around 146.50
The USD/JPY pair traded around 146.50 on Thursday, consolidating within a descending channel and indicating a bearish bias. The 14-day Relative Strength Index (RSI) remains below 30, suggesting a potential short-term rebound.
For support, the pair may test the lower boundary of the descending channel around 140.25, the level recorded in December. In terms of resistance, the pair tests the upper boundary of the channel, aligned with the nine-day Exponential Moving Average (EMA) around 148.15. A breakout above this level could reduce bearish momentum, enabling the pair to test the “throwback support turned resistance” at 154.50.
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