Japanese Yen pares gains ahead of BoJ policy decision

• The Japanese Yen trims intraday gains as traders expect the BoJ to maintain its short-term rate.
• The Bank of Japan may debate over raising rates at its meeting next week and tapering bond purchases.
• The US Dollar faces challenges ahead of the Fed rate decision scheduled for Wednesday.

The Japanese Yen (JPY) trims its daily gains against the US Dollar (USD) as traders anticipate the Bank of Japan’s (BoJ) monetary policy decision on Wednesday. Investors are speculating that the central bank is likely to maintain its short-term rate target between 0% and 0.1% for the third consecutive meeting, following the end of eight years of negative rates in March.

The Bank of Japan is likely to debate whether to raise interest rates at its meeting next week. On Friday, Reuters cited sources familiar with the central bank, noting that "the decision will be a close call and a hard one to make," given the uncertainty over the consumption outlook. Another source mentioned, "It's a judgment call, in terms of whether to act now or later this year."

Additionally, the BoJ is expected to scale back its massive ¥6 trillion ($38.14 billion) monthly Japanese government bonds (JGB) purchase program, as indicated during its June policy meeting.

The US Dollar (USD) faces challenges ahead of the Federal Reserve’s (Fed) upcoming interest rate decision scheduled for Wednesday. While the central bank is expected to keep rates unchanged in July, there is growing anticipation of a rate cut in September. This speculation is putting pressure on the USD.

Daily Digest Market Movers: Japanese Yen trims gains ahead of BoJ decision

• Japan’s Chief Cabinet Secretary Yoshimasa Hayashi stated on Tuesday that the Bank of Japan and the government will closely coordinate, but the specifics of monetary policy remain the BoJ's prerogative. Hayashi emphasized that the BoJ will work closely with the government to implement appropriate monetary policies aimed at achieving the inflation target.
• Japan’s Retail Sales rose by 3.7% year-on-year in June, surpassing the forecasted 3.3% gain and reaching the highest level in four months. Meanwhile, on a monthly basis, Retail Sales increased by 0.6%, a slowdown compared to the previous 1.7% rise.
• Japan's Unemployment Rate was 2.5% in June, slightly lower than market forecasts of 2.6% and the rate observed over the previous four months. This marks the lowest jobless rate since January.
• Atsushi Mimura, Japan’s newly appointed Vice Finance Minister for International Affairs and top foreign exchange official stated in a Bloomberg interview on Monday that “while the recent depreciation of the Yen has both advantages and disadvantages, the demerits are becoming more noticeable.” Mimura mentioned that intervention is among the measures available to counter excessive speculation affecting the currency.
• Japan's top council has urged the government and the Bank of Japan to be mindful of the weak JPY when formulating policy. The council emphasized that the impact of a weak Yen and rising prices on consumption cannot be simply overlooked.
• Reuters has published an extensive article on the Bank of Japan (BoJ) review of past policy, highlighting a significant shift in the central bank's approach to inflation. The key message from the review is that Japan is "ready for higher rates." However, the review will not result in changes to the price goal or policy framework.
• Bank of America indicates that strong economic growth in the United States allows the Federal Open Market Committee (FOMC) to "afford to wait" before making any changes. The bank states that the economy "remains on robust footing" and continues to expect the Fed to start cutting rates in December.

Technical Analysis: USD/JPY moves below 153.00

USD/JPY trades around 152.80 on Wednesday. The daily chart analysis shows that the pair is testing the lower boundary of a descending channel. Additionally, the 14-day Relative Strength Index (RSI) is positioned slightly below 30, suggesting an oversold currency asset situation and a potential short-term rebound.

Immediate support is located near the lower boundary of the descending channel around the 152.60 level. A drop below this level could reinforce the bearish bias and push the USD/JPY pair lower, possibly revisiting May's low of 151.86. Additional support may emerge at the psychological level of 151.00.

On the upside, the pair tests the nine-day Exponential Moving Average (EMA) of 154.47 level, aligned with the "throwback support turned resistance" at the level of 154.50. Further resistance is anticipated near the upper boundary of the descending channel around 155.80.

USD/JPY: Daily Chart