The Japanese Yen (JPY) has gained strength against the US Dollar (USD) following the release of the revised Jibun Bank Services PMI data on Wednesday. The index, which was adjusted to 53.7 for August from an initial estimate of 54.0, indicates that Japan’s service sector has expanded for the seventh consecutive month, although the latest figure remains consistent with July’s reading.
Japan’s Chief Cabinet Secretary, Yoshimasa Hayashi, announced on Wednesday that the government is “closely monitoring domestic and international market developments with urgency.” He underscored the importance of coordinated fiscal and economic policy management with the Bank of Japan (BoJ), though he refrained from commenting on daily stock market fluctuations.
Meanwhile, the US Dollar has received support as traders adopt a cautious stance ahead of crucial US employment data, notably the August Nonfarm Payrolls (NFP) report. This data is anticipated to provide further insights into the Federal Reserve’s potential rate cut decisions.
Daily Digest Market Movers:
BoJ and Market Sentiment: The Japanese Yen’s gains reflect a hawkish sentiment surrounding the BoJ. The US ISM Manufacturing PMI rose marginally to 47.2 in August from 46.8 in July but fell short of the expected 47.5. This represents the 21st month of contraction in US factory activity over the past 22 months.
Energy Subsidies: Japan has announced a ¥989 billion allocation for energy subsidies to mitigate rising energy costs and associated cost-of-living pressures.
US Economic Data: The US Bureau of Economic Analysis reported that the headline Personal Consumption Expenditures (PCE) Price Index increased by 2.5% year-over-year in July, matching the previous reading but falling short of the 2.6% estimate. The core PCE index, which excludes food and energy, rose by 2.6%, consistent with the prior figure but slightly below the forecast of 2.7%.
Japanese Inflation and Employment: Tokyo’s Consumer Price Index (CPI) rose to 2.6% year-on-year in August, up from 2.2% in July. Core CPI increased to 1.6% YoY from 1.5%. Additionally, Japan’s Unemployment Rate unexpectedly climbed to 2.7% in July, marking the highest rate since August 2023.
Fed Perspectives: Federal Reserve Bank of Atlanta President Raphael Bostic indicated last week that it might be “time to move” on rate cuts due to cooling inflation and a higher-than-expected unemployment rate. The FedTracker, which assesses the tone of Fed officials’ speeches, rated Bostic’s comments as neutral with a score of 5.6.
US Economic Growth: The US GDP grew at an annualized rate of 3.0% in Q2, surpassing expectations and the previous growth rate of 2.8%. Initial Jobless Claims fell to 231,000 for the week ending August 23, slightly below the expected 232,000.
BoJ’s Influence: Japan’s Finance Minister Shunichi Suzuki noted last week that exchange rates are influenced by a range of factors, including monetary policies, interest rate differentials, geopolitical risks, and market sentiment. Predicting the impact of these factors on FX rates remains challenging.
Technical Analysis:
The USD/JPY pair is trading around 145.40. The daily chart shows that the nine-day Exponential Moving Average (EMA) is below the 21-day EMA, indicating a bearish trend. The 14-day Relative Strength Index (RSI) is below 50, further supporting the bearish outlook.
Support for USD/JPY may be found around the seven-month low of 141.69 from August 5, with the next key support level near 140.25. On the upside, resistance is likely at the nine-day EMA around 145.63, followed by the 21-day EMA at 146.73. A breakthrough above this level could potentially push the pair towards the psychological barrier of 150.00, with further resistance at 154.50, which has shifted from support to resistance.
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