The Japanese Yen (JPY) has strengthened for the second consecutive day, driven by hawkish comments from Bank of Japan (BoJ) Governor Kazuo Ueda, contrasting with Federal Reserve Chair Jerome Powell’s dovish stance.
On Friday, BoJ Governor Ueda indicated in Parliament that the central bank might consider further interest rate hikes if economic conditions align with their forecasts. This statement was bolstered by July’s National Consumer Price Index (CPI), which remained at its highest level since February, reinforcing the BoJ’s aggressive policy outlook.
In contrast, the US Dollar (USD) has depreciated amid growing expectations of a rate cut by the Federal Reserve. At the Jackson Hole Symposium, Fed Chair Jerome Powell suggested that “the time has come for policy to adjust,” though he did not specify the timing or extent of potential rate cuts. Market expectations now lean towards at least a 25 basis point cut in September, as indicated by the CME FedWatch Tool.
Bloomberg reported that Philadelphia Fed President Patrick Harker emphasized the necessity of a gradual reduction in interest rates. Meanwhile, Chicago Fed President Austan Goolsbee noted that current monetary policy is at its most restrictive, with the Fed now focusing on meeting its employment goals.
Governor Ueda further clarified that the BoJ is not considering selling long-term Japanese government bonds (JGBs) as a means to adjust interest rates. He noted that any potential reduction in JGB purchases would represent a minimal decrease of about 7-8% of the balance sheet. Ueda suggested that future interest rate adjustments could be considered if the economy performs as projected.
Japan’s National CPI rose by 2.8% year-on-year in July, maintaining this rate for the third consecutive month and reaching its highest level since February. The CPI excluding Fresh Food increased by 2.7%, also the highest since February, aligning with expectations.
In the US, the Composite PMI decreased to 54.1 in August from 54.3 in July, marking a four-month low but still exceeding market expectations of 53.5. This indicates continued expansion in US business activity, extending the growth streak to 19 months.
The FOMC Minutes from the July policy meeting revealed that most Fed officials anticipated a likely rate cut in September, provided inflation continues to decelerate.
Technical Analysis: USD/JPY Trends Lower
The USD/JPY pair is trading around 143.90 as of Friday. Technical analysis indicates the pair is below a downtrend line, suggesting a bearish trend. The 14-day Relative Strength Index (RSI) is slightly above 30, signaling that the bearish momentum may persist.
On the downside, the pair may approach the seven-month low of 141.69 recorded on August 5. A breach below this level could push the pair toward the support level at 140.25.
Resistance levels include the immediate downtrend line around the psychological level of 145.00, followed by the nine-day Exponential Moving Average (EMA) at 145.74. A move above the nine-day EMA could lead the pair towards the resistance level at 154.50.
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