The Japanese Yen (JPY) regained ground against the US Dollar (USD) on Friday, with traders scrutinizing Japan’s monetary policy amid signals from central bank officials about potential further rate hikes. However, increased market volatility has led to a more cautious stance.
Bank of Japan Maintains Cautious Approach
Japan’s Finance Minister Shunichi Suzuki stated on Thursday that decisions regarding monetary policy are within the Bank of Japan’s (BoJ) purview, while the government continues to monitor market conditions closely, according to Reuters.
US Dollar Faces Uncertainty Amid Fed Rate Cut Speculation
The US Dollar is encountering headwinds as market expectations rise for a possible rate cut by the Federal Reserve (Fed) in September. Traders are analyzing mixed signals from the US economy to determine if it will achieve a soft landing or fall into recession. The CME FedWatch tool indicates a full market expectation for a 25-basis point rate cut by the Fed in September.
Analysts Weigh In on Future Rate Moves
Julius Baer analysts suggest there is no immediate need for the BoJ to raise interest rates significantly beyond current levels. They forecast that the substantial interest rate differential of approximately 500 basis points between the JPY and USD will become a key factor once market conditions stabilize. The analysts do not anticipate further appreciation of the Yen.
JP Morgan Asset Management (JPAM) concurs, noting that the BoJ is unlikely to hike rates in the near term. JPAM predicts that any further tightening by the BoJ may be considered only if the Fed cuts rates and the US economy stabilizes, with potential rate hikes more likely in 2025 under a stable global economic environment.
Fed Officials Discuss Monetary Policy Adjustments
Kansas City Fed President Jeffrey Schmid mentioned on Thursday that reducing monetary policy could be “appropriate” if inflation remains subdued. Schmid pointed out that the current Fed policy is “not that restrictive,” and while the Fed is approaching its 2% inflation target, it has not yet fully met it, according to Reuters.
US Jobless Claims and BoJ Meeting Insights
US Initial Jobless Claims fell to 233,000 for the week ending August 2, below the market expectation of 240,000. This decline follows an upwardly revised figure of 250,000 for the previous week, the highest in a year.
The BoJ’s Summary of Opinions from the July 30-31 Monetary Policy Meeting revealed that several members believe economic activity and prices are progressing as expected. They are targeting a neutral rate of “at least around 1%” as a medium-term goal.
BoJ Deputy Governor Shinichi Uchida emphasized on Wednesday that the bank’s interest rate strategy will adjust based on market volatility and its impact on economic forecasts and risk assessments. He stressed the need for ongoing monitoring of the economic and price impacts of their policies, stating, “We must maintain the current degree of monetary easing for the time being.”
Minutes from the BoJ’s June meeting also indicated concerns about rising import prices due to the Yen’s recent decline, which could pose an inflationary risk. Some members noted that cost-push inflation might intensify if it leads to higher inflation expectations and wage increases.
Technical Analysis: USD/JPY Outlook
The USD/JPY pair is trading around 147.40 on Friday. Technical analysis shows that the pair has moved above the descending channel, suggesting a weakening of the bearish trend. The 14-day Relative Strength Index (RSI) is at the 30 level, with a move towards 50 potentially signaling improved momentum.
Support levels for USD/JPY may test the upper boundary around 146.75. A break below this level could exert downward pressure, potentially guiding the pair toward support at 140.25, and further to the lower boundary of the descending channel near 139.00.
Resistance levels could see the USD/JPY pair testing the nine-day Exponential Moving Average (EMA) at around 148.13. A breakout above this level could reduce bearish momentum and allow the pair to approach resistance at 154.50.
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