Japanese Yen edges higher due to hawkish BoJ, safe-haven flows

• The Japanese Yen gains ground due to safe-haven flows amid Middle East tensions.
• Japan's parliament will hold a special session to discuss the BoJ interest rate hike last month.
• Downbeat US PPI data have boosted the odds for a larger Fed rate cut in September.

The Japanese Yen (JPY) extends its gains against the US Dollar (USD) on Wednesday. The USD/JPY pair faces challenges due to rising expectations of the Bank of Japan (BoJ) hiking rates again in 2024. Japan's parliament is scheduled to hold a special session on August 23 to discuss the Bank of Japan's (BoJ) decision to raise interest rates last month. BoJ Governor Kazuo Ueda is expected to attend the session, according to government sources cited by Reuters.

The safe-haven flows might have contributed support for the Yen amid rising geopolitical tensions in the Middle East. The BBC reported on Tuesday that the United States sent a guided missile submarine to the Middle East.

The US Dollar lost ground following lower-than-expected Producer Price Index (PPI) data from the United States (US) released on Tuesday. This has increased the bets for US Federal Reserve (Fed) interest rate cuts. Investors will likely observe the US CPI inflation report on Wednesday, which could offer some hints about the Federal Reserve’s (Fed) interest rate cut path.

Daily Digest Market Movers: Japanese Yen appreciates due to rising odds of BoJ hiking rates again

• Japanese Prime Minister Fumio Kishida announced at a press conference on Wednesday that he will not seek re-election as the leader of the Liberal Democratic Party (LDP) in September. Kishida emphasized the need to combat Japan's deflation-prone economy by promoting wage and investment growth and achieving the goal of expanding Japan's GDP to ¥600 trillion.
• Rabobank's senior FX strategist, Jane Foley, observes that this week's series of US data releases, along with next week's Jackson Hole event, should provide the market with clearer insights into the potential responses of US policymakers. However, their main expectation is that the Fed will reduce rates by 25 basis points in September and likely cut them again before the end of the year.
• The US Producer Price Index (PPI) rose 2.2% YoY in July from 2.7% in June, falling short of the market expectation of 2.3%. Meanwhile, the PPI increased 0.1% MoM after rising by 0.2% in June. The Core PPI rose by 2.4% year-on-year in July, against the previous reading of 3.0%. The index fell short of an estimate of 2.7%. The Core PPI remained unchanged.
• On Tuesday, Atlanta Fed President Raphael Bostic stated that recent economic data has increased his confidence that the Fed can achieve its 2% inflation target. However, Bostic indicated that additional evidence is required before he would support a reduction in interest rates, according to Reuters.
• On Sunday, Federal Reserve Governor Michelle Bowman stated that she continues to see upside risks for inflation and ongoing strength in the labor market. Bowman suggested that the Federal Reserve may not be prepared to cut rates at its next meeting in September, according to Bloomberg.
• The Bank of Japan’s Summary of Opinions from the Monetary Policy Meeting on July 30 and 31 indicated that several members believe economic activity and prices are evolving as expected by the BoJ. They are aiming for a neutral rate of "at least around 1%" as a medium-term target.
• The minutes from the Bank of Japan's June meeting indicated that some members voiced concerns about rising import prices due to the recent decline in the JPY, which could present an upside risk to inflation. One member highlighted that cost-push inflation might exacerbate underlying inflation if it leads to increased inflation expectations and wage hikes.

Technical Analysis: USD/JPY hovers around 147.00 with an immediate barrier at nine-day EMA

USD/JPY trades around 146.80 on Wednesday. The daily chart analysis shows that the pair remains below the nine-day Exponential Moving Average (EMA), suggesting a bearish trend in the short term. Moreover, the 14-day Relative Strength Index (RSI) is positioned at the 30 level, suggesting a potential for a correction.

For support levels, the USD/JPY pair might test a seven-month low of 141.69, recorded on August 5, followed by a secondary support level at 140.25.

On the upside, the pair could face immediate resistance at the nine-day EMA around 147.45. A breakout above this level might reduce bearish momentum and enable the pair to approach the 50-day EMA at 153.40, with the potential to test the resistance level of 154.50, where previous support has now turned into resistance.

USD/JPY: Daily Chart