The Japanese Yen (JPY) retraced its daily gains on Wednesday, even as anticipation builds for a potential interest rate hike by the Bank of Japan (BoJ) in 2024. Japan’s parliament is set to convene a special session on August 23 to review the BoJ’s recent rate increase, with BoJ Governor Kazuo Ueda expected to participate, according to Reuters.
Safe-haven demand may have provided some support for the Yen amid escalating geopolitical tensions in the Middle East. The BBC reported that the United States deployed a guided missile submarine to the region, while Israeli forces continued their operations near Khan Younis in southern Gaza. CBC News reported that Israeli strikes in Khan Younis on Monday resulted in the deaths of at least 18 people.
The US Dollar maintained its position as Treasury yields ticked higher. However, the Greenback faced headwinds following weaker-than-expected Producer Price Index (PPI) data released on Tuesday, which has diminished expectations for a significant interest rate cut by the US Federal Reserve (Fed) in September. Market participants will be closely watching the US Consumer Price Index (CPI) report due Wednesday for further clues on the Fed’s monetary policy direction.
Market Highlights: Yen Gains from BoJ Rate Hike Speculation
Japanese Prime Minister Fumio Kishida announced on Wednesday that he will not seek re-election as the leader of the Liberal Democratic Party (LDP) in September. Kishida underscored the need to address Japan’s deflationary challenges by promoting wage growth and investment, with a goal to expand Japan’s GDP to ¥600 trillion.
Rabobank’s senior FX strategist, Jane Foley, noted that upcoming US economic data and next week’s Jackson Hole symposium are expected to provide clearer insights into potential Federal Reserve actions. The prevailing expectation is a 25 basis point rate cut in September, with the possibility of further reductions by year-end.
The US Producer Price Index (PPI) rose 2.2% year-on-year in July, down from 2.7% in June and falling short of the 2.3% forecast. Month-over-month, the PPI increased by 0.1%, compared to a 0.2% rise in June. The Core PPI, which excludes food and energy, grew by 2.4% year-on-year, below the 2.7% estimate and unchanged from the previous reading.
Atlanta Fed President Raphael Bostic expressed increased confidence in achieving the Fed’s 2% inflation target but indicated that more evidence is needed before supporting a rate cut. Similarly, Federal Reserve Governor Michelle Bowman highlighted ongoing inflation risks and labor market strength, suggesting that the Fed may hold off on rate cuts at its September meeting.
The Bank of Japan’s Summary of Opinions from its July 30-31 Monetary Policy Meeting indicated that several members believe economic activity and prices are evolving as anticipated, aiming for a neutral rate of “at least around 1%” as a medium-term target. Minutes from the BoJ’s June meeting revealed concerns about rising import prices due to the Yen’s decline, which could pose an upside risk to inflation through increased inflation expectations and wage hikes.
Technical Analysis: USD/JPY Nears Key Levels
USD/JPY was trading around 146.80 on Wednesday. Technical analysis suggests the pair remains below the nine-day Exponential Moving Average (EMA), indicating a bearish short-term trend. The 14-day Relative Strength Index (RSI) is at 30, signaling potential for a correction.
Support levels include a seven-month low of 141.69 from August 5, followed by 140.25. On the upside, resistance is seen at the nine-day EMA around 147.45. A break above this level could reduce bearish momentum and push the pair toward the 50-day EMA at 153.40, with potential resistance at 154.50, where prior support has turned into resistance.
Related Topics:
