Japanese Yen loses ground despite verbal intervention by authorities

• The USD/JPY pair trades around a fresh high of 161.73 since 1986, recorded on Monday.
• Japanese Finance Minister Shunichi Suzuki noted that there is no change in the government's stance on foreign exchange.
• The US Dollar improves due to higher yields amid heightened expectations of the Fed rate cuts in 2024.

The Japanese Yen (JPY) extends losses on Tuesday, which could be attributed to the improved US Dollar (USD). The USD/JPY pair trades near its fresh low of 161.73 since 1986. However, the verbal intervention by Japanese authorities may limit the downside of the JPY.

Japanese Finance Minister Shunichi Suzuki stated on Tuesday that he is "closely watching FX moves with vigilance." Suzuki refrained from commenting on specific forex levels, noting that there is no change in the government's stance on foreign exchange, according to Reuters.

The US Dollar (USD) halted its three-day losing streak as US Treasury yields rose due to heightened expectations of the Federal Reserve (Fed) reducing interest rates in 2024. Traders await a speech by Federal Reserve Chairman Jerome Powell on Tuesday.

Daily Digest Market Movers: Japanese Yen declines as US Dollar gains ground

• On Monday, OCBC strategists Frances Cheung and Christopher Wong noted that “USD/JPY continued to trade near recent highs. This is also near the highest level since 1986. There are expectations that Japanese authorities could soon intervene. While the level of JPY is one factor to consider, officials also focus on the pace of depreciation as the intent of intervention is to curb excessive volatility.”
• The US Manufacturing Purchasing Managers Index (PMI) unexpectedly dropped to 48.5 in June from 48.7 in May, missing the forecast of 49.1. This reading indicates a third consecutive month of declining manufacturing activity and marks the lowest level since February, according to data released on Monday.
• Japan’s Tankan Large Manufacturing Index rose to 13 in the second quarter from the previous reading of 11. The index hit the highest level in two years amid an improving economic outlook. Meanwhile, Japan’s Jibun Bank Manufacturing PMI for June was revised slightly lower to 50 from a preliminary reading of 50.1 but remained expansionary for the second straight month.
• On Friday, the Federal Reserve Bank of San Francisco President Mary Daly said that monetary policy is working. Still, it’s too early to tell when it will be appropriate to cut the interest rate. Daly stated, "If inflation stays sticky or comes down slowly, rates would need to be higher for longer,” per Reuters.
• On Friday, the US Bureau of Economic Analysis reported that US inflation eased to its lowest annual rate in over three years. The US Personal Consumption Expenditures (PCE) Price Index increased by 2.6% year-over-year in May, down from 2.7% in April, meeting market expectations. Core PCE inflation also rose by 2.6% year-over-year in May, down from 2.8% in April, aligning with estimates.

Technical Analysis: USD/JPY remains above 161.50

USD/JPY trades around 161.60 on Tuesday. The analysis of the daily chart shows a bullish bias, with the pair hovering near the upper boundary of an ascending channel pattern. However, caution is warranted as the 14-day Relative Strength Index (RSI) is above 70, signaling that the asset is overbought. This suggests a potential correction could be forthcoming in the near term.

If the USD/JPY pair surpasses the upper boundary of the ascending channel at around 161.70, it will reinforce bullish sentiment, possibly pushing the pair toward the psychological resistance level of 162.00.

On the downside, immediate support is observed at the nine-day Exponential Moving Average (EMA) located at 160.38. A breach below this level could increase downward pressure on USD/JPY, potentially driving it towards the lower boundary of the ascending channel around 158.50. A further decline below this channel support could lead to a test of June's low at 154.55.

USD/JPY: Daily Chart