The Japanese Yen (JPY) continued its downward trend against the US Dollar (USD) for the second consecutive day on Tuesday. Despite this decline, the fall in JPY might be moderated by the Bank of Japan‘s (BoJ) hawkish stance.
Statements from the BoJ and the Federal Reserve (Fed) have contributed to the volatility in the USD/JPY exchange rate. BoJ Governor Kazuo Ueda indicated on Friday that the central bank might increase interest rates further if economic conditions align with projections. Conversely, Fed Chair Jerome Powell’s remarks at the Jackson Hole Symposium suggested a need for policy adjustments, though he did not specify the timing or magnitude of potential rate cuts. San Francisco Fed President Mary Daly supported Powell’s view, hinting at a likely quarter-percentage point rate cut.
Market expectations are high for a 25 basis point rate cut by the Fed in its upcoming September meeting, as indicated by the CME FedWatch Tool. Japan’s Finance Minister Shunichi Suzuki noted that foreign exchange rates are influenced by multiple factors, including monetary policies and geopolitical risks, making precise predictions challenging.
In economic data, US Durable Goods Orders surged by 9.9% in July, recovering from a 6.9% decline in June and surpassing the anticipated 4.0% increase. This marked the largest gain since May 2020. Additionally, Japan’s National Consumer Price Index (CPI) rose by 2.8% year-on-year in July, maintaining the highest level since February. Excluding fresh food, the National CPI increased by 2.7%, also the highest since February.
The US Composite PMI edged down to 54.1 in August from 54.3 in July but remained above the expected 53.5, indicating ongoing expansion in US business activity. FOMC minutes from July’s meeting revealed that many Fed officials are likely to endorse a rate cut in September if inflation continues to ease.
Technical analysis of the USD/JPY pair shows it trading around 144.90 on Tuesday. The pair is testing a downtrend line, indicating a potential weakening of the bearish trend. The 14-day Relative Strength Index (RSI) is just above 30, confirming the bearish trend. If USD/JPY remains below the downtrend line, it could approach the seven-month low of 141.69. A break below this level may push the pair towards further support at 140.25. Conversely, resistance could emerge around the nine-day Exponential Moving Average (EMA) at 145.67, with potential for further gains if this level is surpassed.
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