The Japanese Yen (JPY) trimmed intraday losses and extended gains against the US Dollar (USD) on Thursday, despite the USD/JPY pair appreciating following the US Federal Reserve’s aggressive 50 basis point interest rate cut on Wednesday. Market participants are now focused on the Bank of Japan’s (BoJ) policy decision scheduled for Friday, with expectations that the BoJ will keep rates unchanged while leaving room for potential future hikes. Investors will also closely watch Japan’s National Consumer Price Index (CPI) data, which could provide insights into the BoJ’s future rate path.
USD/JPY Gains on Fed’s Cautious Stance
The recent upside in USD/JPY can be attributed to Fed Chair Jerome Powell’s remarks during the post-meeting press conference. Powell emphasized that the Fed is not in a hurry to ease policy, underscoring that the recent 50 basis point rate cut is not indicative of a new pace of monetary easing. The Federal Open Market Committee (FOMC) also updated its economic forecasts, raising the median unemployment projection to 4.4% by the end of 2024, up from 4.0%, and increasing the long-term federal funds rate projection from 2.8% to 2.9%.
Market Movers: Fed’s Long-Term Rate Projection and Japan’s Economic Outlook
Despite the Fed’s rate cut to a range of 4.75% to 5.0%—its first in over four years—Powell’s comments dampened market optimism for aggressive policy easing, supporting the US Dollar. He emphasized the Fed’s confidence in maintaining a strong labor market while achieving moderate economic growth and sustainable 2% inflation.
On the Japanese front, the latest trade data revealed a larger-than-expected trade deficit of ¥695.30 billion in August, up from ¥628.70 billion in July but significantly better than the anticipated ¥1,380.0 billion shortfall. Exports rose by 5.6% year-over-year, marking nine consecutive months of growth, although below the expected 10.0% increase. Imports grew by just 2.3%, the slowest pace in five months, well below the forecast of 13.4%.
Japanese Finance Minister Shunichi Suzuki reiterated the government’s concern over rapid foreign exchange fluctuations, stating that officials will continue to monitor FX movements and their impact on the economy.
BoJ’s Policy and Future Outlook
Expectations are high that the BoJ will maintain its current stance, with Fitch Ratings forecasting potential rate hikes to 0.5% by the end of 2024, 0.75% in 2025, and 1.0% by 2026. Despite the BoJ’s cautious outlook, Commerzbank analyst Volkmar Baur suggests that the Fed’s actions may have a greater influence on USD/JPY, with the potential for JPY to weaken further even without a BoJ rate hike.
Technical Analysis: USD/JPY Eyes Further Gains Near 143.00
Technically, USD/JPY is consolidating around 143.00, trading within a descending channel that supports a bearish outlook. However, the rising 14-day Relative Strength Index (RSI) approaching the 50 level and the price moving above the nine-day Exponential Moving Average (EMA) indicate a potential upward correction.
Key resistance levels include the 21-day EMA at 143.73, followed by the upper boundary of the descending channel near 145.00. On the downside, immediate support is seen at 139.58, the lowest level since June 2023, with further support at the descending channel’s lower boundary near 137.75.
As traders brace for the BoJ’s policy decision and CPI data, the USD/JPY pair’s movements will likely hinge on central bank communications and broader market sentiment.
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