CFD Trading Rate US Dollar vs Japanese Yen (USDJPY)

• USD/JPY extends its losing streak within a descending channel, suggesting a confirmed bearish bias.
• The momentum indicator 14-day RSI suggests an oversold situation and a potential for an upward correction soon.
• The pair tests the 14-month low at 140.25, followed by the lower boundary of the channel at the 138.50 level.

USD/JPY continues to decline for the fifth consecutive day, trading around 140.30 during the Asian session on Monday. An analysis of the daily chart showed the USD/JPY pair moves downward within a descending channel, indicating a confirmed bearish bias.

Additionally, the nine-day Exponential Moving Average (EMA) is lower than the 21-day EMA, indicating a downward momentum in the asset's price. However, the 14-day Relative Strength Index (RSI), a momentum indicator, is positioned below the 30 level, suggesting an oversold situation for the USD/JPY pair and a potential for an upward correction soon.

In terms of support, the USD/JPY pair is testing 140.25, which is the lowest level since July 2023, followed by the psychological level of 140.00. A successful breach below this level could reinforce the bearish bias and put pressure on the pair to test the lower boundary of the descending channel at the level of 138.50.

On the upside, the USD/JPY pair might first encounter a barrier at the nine-day EMA around 142.19, followed by the 21-day EMA at 144.04 level. A break above these EMAs might weaken the bearish sentiment and push the pair to test the upper boundary of the descending channel at the 145.50 level.

USD/JPY: Daily Chart

• USD/JPY languishes near the YTD low amid the divergent Fed-BoJ policy expectations. 
• Bears might refrain from placing fresh bets ahead of this week’s central bank event risks.
• The Fed will announce its decision on Wednesday, followed by the BoJ update on Friday.

The USD/JPY pair remains depressed around mid-140.00s during the Asian session on Monday, amid thin trading volumes on the back of a holiday in Japan and seems vulnerable near the YTD low touched last week. Bearish traders, however, might prefer to wait for this week's key central bank event risks before positioning for any further depreciating move. 

The Federal Reserve (Fed) is scheduled to announce its decision at the end of a two-day meeting on Wednesday, which will be followed by the Bank of Japan (BoJ) policy update on Friday. In the meantime, the divergent Fed-BoJ policy expectations led to the recent unwinding of the Japanese Yen (JPY) carry trades and continue to exert some downward pressure on the USD/JPY pair. 

The markets started pricing in a greater chance of an oversized, 50 basis points (bps) rate cut by the US central bank after the US CPI and PPI report released last week pointed to signs of easing inflationary pressures. In contrast, the recent hawkish remarks by BoJ officials reaffirmed market bets that the Japanese central bank will announce another interest rate hike by the end of this year. 

This, in turn, suggests that the path of least resistance for the USD/JPY pair remains to the downside and supports prospects for an extension of a well-established downtrend witnessed over the past two months or so. That said, a generally positive risk tone could cap any meaningful gains for the safe-haven JPY and hold back bulls from placing fresh bets in the absence of any relevant macro data.

• USD/JPY has fallen to fresh lows at a key support level. 
• The long-term uptrend has probably reversed as the pair continues to make lower lows. 

USD/JPY continues sliding and makes a lower low at 140.36 on Friday, bottoming out at about the same level as the key December 2023 low – where it is expected to encounter firm support. 

USD/JPY 4-hour Chart 

The break below the August 5 low on September 11 crossed an important threshold for the pair. Taken together with the break below the major multi-year trendline at the beginning of August, it suggests a possibility the long-term uptrend has reversed. Given it is a principle of technical analysis that “the trend is your friend” such a reversal suggests the broad bias has shifted from being “bullish” to “bearish”. 

If USD/JPY can make a daily close below the 140.25 December 2023 low, it would provide even more confirmatory evidence of a long-term trend reversal. Such a break might then see price fall to the next target at 137.24 (July 2023 low). It should be noted that the short and medium-term trends are already bearish. 

USD/JPY is showing mild bullish convergence between the price and the Relative Strength Index (RSI). At the September 11 low the RSI was in the oversold zone, now even though price has sunk even lower, the RSI has not. 

This could be a sign that the move down lacks some bearish conviction and suggests a risk of a pull-back evolving. Given the other bearish signs on the chart, however, such a rebound if it materializes is likely to be temporary before the bear trend resumes and takes the pair to new lows. 

USD/JPY fell, driven by decline in the USD leg as expectations for larger Fed cut returned to the table, and was last seen at 140.70, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Bias to the downside

“Daily momentum is not showing a clear bias for now but RSI fell. Death cross earlier formed is getting more ‘entrenched’. Bias to the downside. Support at 140.70, 140.30 levels. Resistance at 143.50, 144.40 (21 DMA). Markets will be eyeing 140 level.”

“A decisive break on that level may trigger other USD/AXJs to break their recent support. Recent BoJspeaks reinforced normalisation bias. BoJ’s Tamura said that BoJ needs to lift rate to 1% by outlook period end (2026) while BoJ’s Nakagawa said that real rates are at very low level and that BoJ will continue to adjust the degree of easing if the economy and prices perform in line with expectations.”

“Fed-BoJ policy shifts and growing pace of normalisation can bring about faster narrowing of UST-JGB yield differentials and this should continue to underpin the broader direction of travel for USD/JPY to the downside.”

• USD/JPY remains under some selling pressure on Friday and hits a fresh YTD low. 
• The divergent Fed-BoJ policy expectations continue to weigh heavily on the pair. 
• Investors look to Fed and BoJ meetings next week for a fresh directional impetus.

The USD/JPY pair drops to a fresh YTD trough during the first half of the European session on Friday, albeit manages to recover a few pips in the last hour. Spot prices currently trade around the 140.75 region, still down over 0.75% for the day and seem vulnerable to slide further.

The divergent Federal Reserve (Fed)-Bank of Japan (BoJ) policy expectations led to the recent narrowing of the US-Japan rate differential and continued to prompt the unwinding of the Japanese Yen (JPY) carry trades. In fact, the markets started pricing in the possibility of a larger interest rate cut by the US central bank following the release of the softer-than-expected US Producer Price Index (PPI), which indicated that inflation is subsiding. 

Dovish Fed expectations, meanwhile, drag the yield on the benchmark 10-year US government bond to its lowest level since May 2023. Meanwhile, Japan’s 10-year government bond yield also fell to a four-week low, though hawkish signals from BoJ policymakers should limit the fall. BoJ board member Junko Nakagawa said this week that the central bank will raise interest rates further if the economy and inflation move in line with its forecasts. 

Adding to this, BoJ board member Naoki Tamura said on Thursday that the central bank must push up short-term rates to at least around 1% through fiscal 2026 to stably achieve the 2% inflation target. This, in turn, reaffirms bets that the Japanese central bank will announce another interest rate hike by the end of this year, which might continue to drive flows towards the JPY and support prospects for a further depreciating move for the USD/JPY pair. 

That said, the upbeat market mood might keep a lid on any further JPY gains as traders look forward to next week's key central bank event risks before placing fresh directional bets. The Fed is scheduled to announce its decision at the end of a two-day policy meeting on Wednesday. This will be followed by the BoJ policy update on Friday, which will play a key role in influencing the USD/JPY pair in the near term. Nevertheless, spot prices remain on track to register losses for the second straight week – also marking the third in the previous four.

• USD/JPY trades with negative bias for the fourth straight day and hangs near the YTD low.
• The divergent Fed-BoJ policy expectations turn out to be a key factor weighing on the pair.
• Investors now look forward to next week’s key central bank event risks for a fresh impetus.

The USD/JPY pair weakens further below mid-141.00s during the Asian session on Friday and has now moved back closer to the YTD low touched earlier this week. Moreover, the fundamental backdrop seems tilted firmly in favor of bearish traders and supports prospects for an extension of a well-established downtrend witnessed over the past two months or so. 

The US Dollar (USD) dives to a fresh weekly low in the wake of rising bets for a more aggressive policy easing by the Federal Reserve (Fed) next week, bolstered by Wednesday's release of softer-than-expected US Producer Price Index (PPI) print. In fact, the markets are now pricing in over a 40% chance that the US central bank will lower borrowing costs by 50 basis points at the end of the September meeting. This keeps the US Treasury bond yields depressed near the 2024 low, which is seen weighing on the buck and dragging the USD/JPY pair lower. 

The Japanese Yen (JPY), on the other hand, continues to draw support from the Bank of Japan's (BoJ) hawkish signals, indicating that it will raise interest rates further if the economic outlook aligns with the forecasts. In fact, BoJ board member Naoki Tamura said on Thursday that the path towards ending the easy policy is still very long. This marks a big divergence in comparison to dovish Fed expectations, which, in turn, prompts further unwinding of the Japanese Yen (JPY) carry trades and contributes to the offered tone surrounding the USD/JPY pair. 

The aforementioned fundamental backdrop suggests that the path of least resistance for spot prices remains to the downside, though traders might prefer to move to the sidelines ahead of the key central bank event risks next week. The Fed is scheduled to announce its decision at the end of a two-day meeting next Wednesday. This will be followed by the BoJ policy update on Friday, which will determine the next leg of a directional move for the USD/JPY pair. Nevertheless, the pair remains on track to end deep in the red for the second successive week.

• USD/JPY remains downward biased, with a daily close below 142.00 signaling potential for further losses toward 140.71 and 140.25.
• Bears maintain control as RSI stays flat, indicating consolidation before the next move.
• On an upward correction, resistance lies at 142.00, followed by 143.04 and key levels at 143.96 (Tenkan-Sen) and 144.50 (Senkou Span A).

The USD/JPY fell from around 143.00 peak and lost over 0.28% due to mixed economic data from the United States (US), bolstering the odds for the Federal Reserve’s first rate cut next week. At the time of writing, the pair trades at 141.96.

USD/JPY Price Forecast: Technical outlook

The USD/JPY remains downward biased, but after Wednesday's long tail, it could face an upward correction and test key resistance levels.

Despite that, bears remain in charge as the Relative Strength Index (RSI) shows, though a flat slope, hints that consolidation lies ahead.

 If USD/JPY achieves a daily close below 142.00, traders could drag prices toward the September 11 trough at 140.71. If cleared, the next stop would be December 28, 2023, with a cycle low of 140.25, ahead of 140.00.

On further strength, the first resistance would be the 142.00 mark. If hurdled, the next stop would be the September 12 high at 143.04, followed by the Tenkan-Sen at 143.96 and Senkou Span A at 144.50.

USD/JPY Price Action – Daily Chart

• USD/JPY slumps to near 142.00 as the US Dollar corrects after the US PPI report release.
• The US headline and core PPI for August came in softer-than-expected.
• BoJ Tamura sees interest rates rising to at least 1%.

The USD/JPY pair falls sharply to near 142.00 in Thursday’s North American session. The asset declines as the US Dollar (USD) faces selling pressure after the release of the softer-than-expected United States (US) annual Producer Price Index (PPI) data for August.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, corrects to near 101.60.

The PPI report showed that the annual headline produce inflation grew by 1.7%, slower than estimates of 1.8% and the prior release of 2.1%, downwardly revised from 2.2%. The core PPI – which excludes volatile food and energy prices – rose steadily by 2.4%, at a slower pace than expectations of 2.5%. The impact of the US PPI data appears to be insignificant on market speculation for the Federal Reserve (Fed) interest rate cut path for next week’s policy meeting.

According to the CME FedWatch tool, the probability for the Fed reducing interest rates by 50 basis points (bps) to 4.75%-5.00% in September remains at 13% as they were before the US PPI data release.

Going forward, investors will focus on the preliminary Michigan Consumer Sentiment Index data for September, which will be published on Friday. The sentiment data is estimated to have remained almost steady at 68.0 from the prior release of 67.9.

On the Tokyo front, the Japanese Yen (JPY) strengthens as Bank of Japan (BoJ) policymaker Naoki Tamura delivers a hawkish interest rate guidance. Tamura sees interest rates rising to at least 1% by the early second half of 2025. Tamura refrained from providing a pre-set interest rate hike path.

USD/JPY’s rebound was stopped in its track after BoJ’s Tamura said that BoJ needs to lift rate to 1% by outlook period end (2026), OCBC’s FX analysts Frances Cheung and Christopher Wong note.

The broader direction of travel for USD/JPY us to the downside

“He also said that the neutral rate is at least at 1%. He is perceived as a hawkish member. Yesterday, BoJ’s Nakagama said that real rates are at very low level and that BoJ will continue to adjust the degree of easing if the economy and prices perform in line with expectations.”

“Pair was last seen at 142.78 levels. Daily momentum is not showing a clear bias for now while RSI is flat. Death cross earlier formed with 50-DMA cutting 200-DMA to the downside. Bias to sell rallies. Resistance at 143.70, 145 (21-DMA) and 146.40 (23.6% fibo retracement of Jul high to Aug low). Support at 141.50, 140.70.”

“We reiterate that Fed-BoJ policy shifts and growing pace of normalisation can bring about faster narrowing of UST-JGB yield differentials and this should continue to underpin the broader direction of travel for USD/JPY to the downside.”

• USD/JPY gains ground due to rising odds of a smaller rate cut by the Fed in September.
• BoJ board member Naoki Tamura stated that there is no predetermined plan regarding the pace of future rate hikes.
• CME FedWatch Tool suggests the odds of a 50 bps rate cut by the Fed have decreased to 15.0%.

USD/JPY breaks its two-day losing streak, trading around 142.90 during the European hours on Thursday. The Japanese Yen (JPY) remains subdued following the remarks from the Bank of Japan (BoJ) board member Naoki Tamura.

BoJ board member Tamura stated that there is "no preset idea on the pace of further rate hikes." Unlike in the US and Europe, Japan's rate hikes are expected to proceed more gradually. The exact timing for when short-term rates in Japan might reach 1% will depend on the economic and price conditions at that time.

Read the full article: BoJ’s Tamura doesn't have a preset idea on the pace of further rate hikes

The upside of the USD/JPY pair could be attributed to rising expectations of a smaller interest rate cut by the Fed in September. August’s US Consumer Price Index (CPI) data showed that headline inflation dropped to a three-year low. This development has heightened the likelihood that the Federal Reserve (Fed) will begin its easing cycle with a 25-basis points interest rate cut in September.

The US Consumer Price Index dipped to 2.5% year-on-year in August, from the previous reading of 2.9%. The index has fallen short of the expected 2.6% reading. Meanwhile, headline CPI stood at 0.2% MoM. Core CPI ex Food & Energy, remained unchanged at 3.2% YoY. On a monthly basis, core CPI rose to 0.3% from the previous 0.2% reading.

According to the CME FedWatch Tool, markets are fully anticipating at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting. The likelihood of a 50 bps rate cut has sharply decreased to 15.0%, down from 44.0% a week ago.

• USD/JPY attracts fresh sellers following an intraday gains to the 143.00 neighborhood. 
• BoJ Tamura’s hawkish remarks boost the JPY and exert downward pressure on the pair.
• A goodish pickup in the USD demand and the upbeat market mood lend some support.

The USD/JPY pair fails to capitalize on modest Asian session gains to the 143.00 neighborhood and for now, seems to have stalled its goodish recovery from a nearly nine-month low touched the previous day. Spot prices currently trade around the mid-143.00s, or the lower end of the daily range and seem vulnerable to prolonging the recent well-established downtrend witnessed over the past two months or so.

Despite further signs that consumer prices in the US are easing overall, the core CPI print indicated that the underlying inflation remains sticky and dashed hopes for an outsized, 50 basis points (bps) rate cut by the Federal Reserve (Fed) next week. This, in turn, assists the US Dollar (USD) to regain positive traction and climb back closer to the monthly peak. Apart from this, the risk-on impulse undermined the safe-haven Japanese Yen (JPY) and acted as a tailwind for the USD/JPY pair higher. 

The JPY was further weighed down by an unexpected decline in Japan's Producer Price Index (PPI), by 0.2% in August. Adding to this, the yearly rate decelerated more than anticipated to 2.5% during the reported month from 3.0% in July. That said, comments by Bank of Japan (BoJ) board member Naoki Tamura, saying that the path towards ending the easy policy is still very long, reaffirms bets for a further rise in borrowing costs by the end of this year and helps limit losses for the JPY.

Furthermore, the markets have fully priced in a 25 bps Fed rate cut move at its upcoming policy meeting on September 17-18, marking a big divergence in comparison to a hawkish BoJ. This, in turn, prompts fresh selling around the USD/JPY pair and turns out to be a key factor behind the intraday pullback. Traders now look forward to the release of the US PPI for a fresh impetus, though the fundamental backdrop suggests that the path of least resistance for spot prices is to the downside.

USD/JPY bounces off almost-yearly lows following the release of US inflation data. 

The data shows inflation falling at a broadly expected pace but reduces the probability of a 50 bps rate cut from the Fed. 

JPY is supported by comments from BoJ’s Nakagawa hinting that an interest rate hike is in the pipeline. 

USD/JPY recovers to trade just below 141.00 after dipping to a new nine-month low on Wednesday. The rebound comes following the release of US inflation data. 

The US data lleads to an appreciation in the US Dollar (USD) amid prospects of a more measured approach to easing from the Federal Reserve (Fed), whilst the Japanese Yen (JPY) trades overall firm after comments from a Bank of Japan (BoJ) official suggested an interest rate hike was closer at hand than previously thought.  

US consumer prices mostly rose in line with expectations in August although the annual change in the headline Consumer Price Index (CPI) did undershoot economists’ expectations by a point, revealing a rise of 2.5% instead of the 2.6% forecast, according to data from the US Bureau of Labor Statistics on Wednesday. 

Core CPI (ex food and energy) also rose as expected but monthly core CPI rose by a higher-than-expected 0.3% suggesting some stubbornness in core prices, which analysts put down to sticky dwelling prices. 

The data indicated that inflation remains sufficiently high for the Fed not to implement a "jumbo" 50 basis points (bps) cut at its next meeting, but rather adopt a more measured approach instead. The probabilities of a 50 bps (0.50%) cut at the September 17-18 Fed meeting fell to only 15% after the release, from around 27% before. A 25 bps (0.25%) cut, meanwhile, remains fully priced in, according to the CME FedWatch tool. 

“Overall, inflation appears to have been successfully tamed but, with housing inflation still refusing to moderate as quickly as hoped, it hasn’t been completely vanquished. Under those circumstances, we expect the Fed to take a measured approach to cutting interest rates,” remarked Paul Ashworth, Chief North America Economist at Capital Economics. 

With the chances of the larger cut in US interest rates diminishing, the USD strengthened and USD/JPY rose. Relatively higher interest rate expectations are usually supportive of a currency because they lead to higher foreign capital inflows. 

The Japanese Yen (JPY), meanwhile, trades firm after comments from BoJ Board member Junko Nakagawa recently hinted at another rate hike. Japan’s Labor Cash earnings for July also exceeded expectations, which continue to support the case for further normalization of BoJ policy. 

“Nakagawa emphasized that the BoJ would adjust policy if economic projections materialize, signaling that Japan’s low real rates may need tightening sooner than expected,” said Saxo Bank in a research note on Wednesday. 

The US Dollar (USD) is likely to trade with a downward bias; the probability of it breaking the significant support at 140.80 is not high, UOB Group FX analysts Quek Ser Leang and Peter Chia note.

Probability of it breaking below 140.80 is not high

24-HOUR VIEW: “We expected USD to trade in a range between 142.40 and 144.00 yesterday. USD then traded in a 142.18/143.71 range, closing on a soft note at 142.43 (-0.53%). Downward momentum is beginning to build, but not enough to suggest the start of a sustained decline. However, as long as 143.30 (minor resistance is at 142.70) is not breached, USD is likely to edge lower, potentially breaking below July’s low of 141.66. The significant support level at 140.80 is unlikely to come under threat.”

1-3 WEEKS VIEW: “We continue to hold the same view as from Monday (09 Sep, spot at 142.65). As highlighted, we expect USD to trade with a downward bias. However, given the tentative buildup in momentum, the probability of USD breaking the significant support level at 140.80 is not high. To maintain the buildup in momentum, USD must not breach the ‘strong resistance’ at 144.00 (no change in level).”

• USD/JPY has broken to new lows, indicating a possible reversal in the long-term trend. 
• The move lacks momentum, however, and risks running out of energy before a pull back higher. 

USD/JPY has made a bearish break below the key August 5 lows. Although the move down lacks momentum the break could be indicative of a long-term trend reversal.  

USD/JPY Daily Chart 

The pair has already broken below a major multi-year trendline, suggesting the long-term uptrend has been undermined. The break below the August 5 lows confirms it might have reversed. Given it is a principle of technical analysis theory that “the trend is your friend” such a break increases the odds of more downside evolving in the future. 

Strong support comes in at 140.25 (December 2023 low), however, and this could slow the pair’s descent. A break below that level too, would provide even more confirmatory evidence of a reversal in the trend. Such a break might see price fall to the next target at 137.24 (July 2023 low). 

USD/JPY is showing bullish convergence between the price and the Relative Strength Index (RSI). At the August 5 bottom, the RSI was in the oversold zone, now even though price has sunk to a lower low, RSI has not. 

This could be a sign that the move down lacks bearish conviction and suggests a risk of a rebound higher.

USD/JPY fell sharply this morning after comments from BoJ’s Nakagama added to policy normalisation bias, OCBC FX strategist Frances Cheung and Christopher Wong note.

Risks skewed to the downside

“The drop in USD/JPY may also have triggered stop-sell orders, resulting in the fairly sharp move to trade below 141.50 low. He said that real rates are at very low level and that BoJ will continue to adjust the degree of easing if the economy and prices perform in line with expectations. Overnight, USD/JPY had already traded heavy, alongside the decline in UST yields, which may be taking cues from the precipitous drop in oil prices.”

“We reiterate that FedBoJ policy shifts and growing pace of normalisation can bring about faster narrowing of UST-JGB yield differentials and this should continue to underpin the broader direction of travel for USD/JPY to the downside. Pair was last seen at 141.80. Daily momentum is not showing a clear bias for now while RSI fell.”

“Death cross earlier formed with 50-DMA cutting 200-DMA to the downside. Risks skewed to the downside. Support at 141.50 (Aug, Sep low). Break below puts 140.20. Resistance at 143.70, 145 (21-DMA) and 146.40 (23.6% fibo retracement of Jul high to Aug low).”

• USD/JPY continues to lose ground due to hawkish sentiment surrounding the BoJ’s policy stance.
• BoJ’s Nagakawa stated that the bank may adjust the degree of its monetary easing if the economy and inflation come as projected.
• CME FedWatch Tool suggests full pricing of at least a 25 basis point Fed rate cut in September.

USD/JPY loses ground for the second consecutive day, trading around 141.20 during the Asian hours on Wednesday. The Japanese Yen (JPY) remains solid following the remarks from Bank of Japan (BoJ) board member Junko Nagakawa.

BoJ board member Nagakawa stated that the central bank may adjust the extent of its monetary easing if the economy and prices align with its projections. Despite the rate hike in July, real interest rates remain deeply negative, and accommodative monetary conditions persist. Should long-term rates surge, the BoJ may reconsider its tapering plan during its policy meetings, as necessary.

The downside of the USD/JPY pair is also driven by the contrasting monetary policies of the Bank of Japan and the US Federal Reserve, which has been encouraging the unwinding of carry trades and boosting demand for the Japanese. BoJ Governor Kazuo Ueda reiterated the central bank's commitment to continue raising interest rates, provided the Japanese economy meets the bank’s forecasts through FY2025.

US Dollar (USD) remains subdued as the Treasury yields continue to decline ahead of the US Consumer Price Index (CPI) data scheduled to be released later in the North American hours. The upcoming inflation report may offer fresh cues regarding the potential magnitude of the Federal Reserve's (Fed) interest rate cut in September. Moreover, the recent US labor market report has cast doubt on the possibility of an aggressive Fed interest rate cut.

According to the CME FedWatch Tool, markets are fully anticipating at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting. The likelihood of a 50 bps rate cut has slightly decreased to 31.0%, down from 38.0% a week ago.

• USD/JPY drifts lower for the second straight day and slides back closer to a one-month low.
• The divergent BoJ-Fed policy expectations turn out to be a key factor exerting some pressure.
• Traders seem reluctant to place aggressive bets ahead of the release of the key US CPI report.

The USD/JPY pair remains under some selling pressure for the second successive day on Wednesday, albeit finds some support near the 142.00 mark and recovers a few pips in the last hour. Spot prices currently trade around the 142.30 region, well within the striking distance of a one-month low touched last week. 

This downfall is sponsored by the divergent monetary policies between the Bank of Japan (BoJ) and the Federal Reserve (Fed), which continues to prompt the unwinding of carry trades and driving flows towards the Japanese Yen (JPY). In fact, BoJ Governor Kazuo Ueda reaffirmed the commitment to keep raising interest rates if the Japanese economy meets the central bank’s economic forecasts through FY2025. 

In contrast, the markets have fully priced in a 25 basis points (bps) interest rate cut by the Fed at its upcoming policy meeting on September 17-18. This, in turn, fails to assist the US Dollar (USD) to capitalize on its gains registered over the past three days. Apart from this, the cautious market mood is seen benefitting the JPY's relative safe-haven status and exerting some downward pressure on the USD/JPY pair. 

The aforementioned fundamental backdrop favors bearish traders and suggests that the path of least resistance for spot prices is to the downside. Investors, however, might prefer to wait for the release of the crucial US Consumer Price Index (CPI) report for cues about the Fed's rate-cut path. This will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the USD/JPY pair.

• USD/JPY trades sideways near 143.00 with a focus on the US inflation data for August.
• The US inflation data will influence market expectations for the Fed interest rate cut path.
• Investors see the BoJ hiking interest rates further in the remainder of the year.

The USD/JPY pair steadies near 143.00 in Tuesday’s European session, holding gains generated after rebounding from the Year-to-date (YTD) low of 141.70 on Monday. The asset is expected to trade sideways as investors have sidelined ahead of the United States (US) Consumer Price Index (CPI) data for August, which will be published on Wednesday.

The market sentiment appears to be cautious as the US inflation data is expected to significantly influence market speculation for the Federal Reserve (Fed) interest rate cut path. S&P 500 futures have posted nominal losses in European trading hours. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, clings to gains near 101.60.

Investors see the US annual headline CPI decelerating to 2.6%, the lowest since March 2021, from 2.9% in July. The core inflation-which excludes volatile food and energy prices- is expected to have grown steadily by 3.2%. The significance of the inflation data has increased as the US Nonfarm Payrolls (NFP) data for August failed to provide a precise case about whether the Fed will start the policy-easing cycle aggressively or gradually.

Soft inflation figures would prompt market expectations for the Fed to cut interest rates by 50 basis points (bps) in the monetary policy meeting next week. The confusion over Fed’s likely interest rate cut size would deepen if the figures remain hot or sticky.

Meanwhile, the overall outlook of the Japanese Yen (JPY) remains firm as the Bank of Japan (BoJ) is expected to tighten its monetary policy further amid persistent inflationary pressures. Traders continue to bet for BoJ’s policy-tightening despite Japan’s Q2 Gross Domestic Product (GDP) data coming in lower than projected. Japan’s annualized GDP unexpectedly grew at a slower pace of 2.9%. Investors forecasted Japan’s economy to have expanded at a faster pace of 3.2% from the former release of 3.1%.

The US Dollar (USD) is likely to trade in a range between 142.40 and 144.00. In the longer run, USD is likely to trade with a downward bias; the probability of it breaking the significant support at 140.80 is not high, UOB Group FX strategists Quek Ser Leang and Peter Chia note.

Probability of breaking below 140.80 is not high

24-HOUR VIEW: “We expected USD to trade in a range between 142.00 and 143.50 yesterday. USD then traded in a wider range than expected (141.94/143.79), closing at 143.17. The price action provides no fresh clues. Today, we continue to expect USD to trade in a range, likely between 142.40 and 144.00.”

1-3 WEEKS VIEW: “Our update from yesterday (09 Sep, spot at 142.65) is still valid. As highlighted, we expect USD to trade with a downward bias. However, given the tentative buildup in momentum, the probability of USD breaking the significant support level at 140.80 is not high. To maintain the buildup in momentum, USD must not breach the ‘strong resistance’ at 144.00 (no change in level).”