The Japanese Yen (JPY) continued its decline against the US Dollar (USD) following the release of July’s US Personal Consumption Expenditures (PCE) Index, which led traders to temper expectations of a significant Federal Reserve rate cut in September.
The CME FedWatch Tool indicates that markets are still fully expecting at least a 25 basis point (bps) rate cut from the Federal Reserve at its September meeting. However, attention is now shifting to upcoming US employment data, particularly the August Nonfarm Payrolls (NFP), which will provide further insight into the Federal Reserve’s potential course of action.
On Monday, Japanese companies reported a 7.4% rise in Capital Spending for the second quarter. Additionally, Japan’s Manufacturing PMI for August was revised upward to 49.8 from an initial 49.5, signaling a move toward stabilization. Despite a rise in Tokyo inflation on Friday, which bolstered the Bank of Japan‘s (BoJ) hawkish monetary stance, the JPY’s gains were capped, limiting its impact on the USD/JPY pair.
Market Movers: Japanese Yen Declines as BoJ Stays Hawkish
The US Bureau of Economic Analysis announced on Friday that the headline PCE Price Index rose by 2.5% year-over-year in July, matching the previous reading but falling short of the 2.6% forecast. The core PCE, excluding volatile food and energy prices, also increased by 2.6% year-over-year, consistent with the prior figure but slightly below the expected 2.7%.
In Tokyo, the Consumer Price Index (CPI) climbed to 2.6% year-over-year in August, up from 2.2% in July, while the core CPI rose to 1.6% YoY from 1.5%. Meanwhile, Japan’s unemployment rate unexpectedly increased to 2.7% in July, the highest since August 2023, up from both the market estimate and June’s 2.5%.
Federal Reserve Atlanta President Raphael Bostic, known for his hawkish stance on the Federal Open Market Committee (FOMC), suggested last week that the time might be approaching for rate cuts, citing cooling inflation and a higher-than-expected unemployment rate. FXStreet’s FedTracker, which uses AI to gauge the tone of Fed officials’ speeches, rated Bostic’s comments as neutral with a score of 5.6.
The US economy demonstrated resilience, with the Gross Domestic Product (GDP) growing at an annualized rate of 3.0% in the second quarter, surpassing expectations of 2.8%. Initial Jobless Claims also fell slightly, with 231,000 people filing for unemployment benefits for the week ending August 23, down from 233,000 the previous week.
Japan’s Finance Minister Shunichi Suzuki noted last week that foreign exchange rates are influenced by multiple factors, including monetary policies, interest rate differentials, geopolitical risks, and market sentiment, making their future direction difficult to predict.
Technical Analysis: USD/JPY Steadies Around 146.00
On Monday, the USD/JPY pair traded around the 146.00 level. Technical analysis of the daily chart shows the pair is positioned above the downtrend line, hinting at a weakening bearish bias. However, the 14-day Relative Strength Index (RSI) remains below 50, indicating that the bearish trend has not yet reversed.
In terms of support, the pair may first test the nine-day Exponential Moving Average (EMA) near 145.53, followed by the downtrend line around 144.00. A break below these levels could see the pair move toward the seven-month low of 141.69, recorded on August 5, with further support around 140.25.
On the upside, the USD/JPY pair could target the psychological level of 150.00. A break above this threshold might lead the pair to challenge the 154.50 area, which has shifted from support to resistance.
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