The Japanese Yen (JPY) appreciated for the second consecutive day against the US Dollar (USD), driven by growing expectations of a more hawkish stance from the Bank of Japan (BoJ). Recent data showing Japan’s second-quarter GDP growth has bolstered the likelihood of an imminent interest rate hike by the BoJ.
The Yen also benefited from safe-haven flows amid rising geopolitical tensions. According to reports, Hamas rejected a proposed hostage release-ceasefire deal discussed in Doha, and escalating tensions between Ukraine and Russia have added to global uncertainties.
The US Dollar, meanwhile, continued to weaken following dovish remarks from Federal Reserve (Fed) officials, which have increased the likelihood of an interest rate cut in September. Recent US economic data, including the Producer Price Index (PPI) and Consumer Price Index (CPI), pointed to easing inflation, further supporting this expectation.
Federal Reserve Bank of San Francisco President Mary Daly emphasized the need for a gradual approach to reducing borrowing costs, while Chicago Fed President Austan Goolsbee cautioned against maintaining a restrictive policy longer than necessary.
Market Movers and Economic Data
Japan’s Machinery Orders, a key indicator of capital expenditure, rose by 2.1% month-on-month in June, exceeding the forecasted 1.1% increase. Markets are now focused on upcoming Japanese inflation figures for further insights into the BoJ’s monetary policy direction.
In the US, Housing Starts dropped by 6.8% in July, while the University of Michigan’s Consumer Sentiment Index showed its first increase in five months, rising to 67.8 in August. Additionally, US Retail Sales rebounded by 1.0% month-over-month in July, and Initial Jobless Claims fell to 227,000, below expectations.
Japanese Economy Minister Yoshitaka Shindo stated that the economy is expected to recover gradually as wages and incomes improve. He also noted the government’s intention to work closely with the BoJ on flexible macroeconomic policies. Japan’s GDP grew by 0.8% quarter-on-quarter in Q2, beating forecasts and marking the strongest quarterly growth since Q1 of 2023.
Technical Analysis: USD/JPY Trends Lower
The USD/JPY pair traded near 146.40 on Monday, slightly below the nine-day Exponential Moving Average (EMA), indicating a short-term bearish trend. The 14-day Relative Strength Index (RSI) also remains below 50, confirming bearish momentum.
Key support levels for USD/JPY include the seven-month low of 141.69 reached on August 5, with further declines potentially targeting 140.25. On the upside, resistance could be encountered around the nine-day EMA at 147.60, with higher targets at the 50-day EMA of 152.78 and the resistance level at 154.50.
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