Japanese Yen declines further as BoJ Uchida refuses to raise rates amid market instability

• The Japanese Yen continues to lose ground following the dovish remarks from BoJ Deputy Governor Shinichi Uchida.
• BoJ’s Uchida emphasized that the central bank must maintain its current level of monetary easing for the time being.
• CME FedWatch tool suggests 67.5% odds of a 50-basis point Fed rate cut in September, up from 13.2% last week.

The Japanese Yen (JPY) extends its losses against the US Dollar (USD) for the second successive day. This downside could be attributed to the comments from Bank of Japan (BoJ) Deputy Governor Shinichi Uchida on Wednesday, “We won’t raise rates when markets are unstable,” according to Reuters.

Deputy Governor Uchida also noted that the BoJ's interest rate strategy will adapt if market volatility alters economic forecasts, risk assessments, or projections. Given recent market volatility, he emphasized the need for careful monitoring of the economic and price impacts of their policies, stating, “We must maintain the current degree of monetary easing for the time being.”

The upside potential for the USD/JPY pair may be limited as the US Dollar faces challenges, with markets anticipating a more substantial rate cut beginning in September. According to the CME FedWatch tool, there is now a 67.5% probability of a 50-basis point (bps) interest rate cut by the US Federal Reserve (Fed) in September, up from 13.2% a week earlier.

Daily Digest Market Movers: Japanese Yen weakens following remarks from BoJ’s Uchida

• Japan’s Chief Cabinet Secretary Yoshimasa Hayashi stated on Tuesday that “wage increases are expected to extend to part-timers and small businesses by autumn, supported by strong Shunto results and minimum wage hikes.” Hayashi did not provide comments on foreign exchange levels.
• Japan’s Labor Cash Earnings data showed a 4.5% year-on-year increase in average income for June, surpassing both the previous 2.0% and the expected 2.3% readings. This is the highest increase since January 1997, reinforcing Japan's transition toward a rising interest rate environment.
• According to Reuters, Federal Reserve Bank of San Francisco President Mary Daly expressed increased confidence on Monday that US inflation is moving towards the Fed's 2% target. Daly noted that “risks to the Fed's mandates are becoming more balanced and that there is openness to the possibility of cutting rates in upcoming meetings.”
• Chicago Fed President Austan Goolsbee stated on Monday that the US central bank is prepared to act if economic or financial conditions worsen. Goolsbee emphasized, "We're forward-looking about it, and so if the conditions collectively start coming in like that on the through line, there’s deterioration on any of those parts, we’re going to fix it.” according to Reuters.
• The minutes from the Bank of Japan's June meeting showed that some members expressed concerns about rising import prices due to the recent decline in the JPY, which could pose an upside risk to inflation. One member noted that cost-push inflation might intensify underlying inflation if it results in higher inflation expectations and wage increases.
• The Bank of Japan (BoJ) released the full version of its Quarterly Outlook Report on Thursday, noting that there is a possibility wages and inflation could exceed expectations. This could be accompanied by rising inflation expectations and a tight labor market.

Technical Analysis: USD/JPY rises to near 146.50

USD/JPY trades around 146.70 on Wednesday. The daily chart analysis shows that the pair continues to rise toward the nine-day Exponential Moving Average (EMA) at 148.57 level, suggesting a weakening of the bearish momentum. Additionally, the 14-day Relative Strength Index (RSI) is below 30, signaling that the currency pair is oversold and could see a short-term rebound.

Regarding support, the USD/JPY pair may test the throwback support at the 140.25 level, which was recorded in December.

In terms of resistance, the USD/JPY pair might face a barrier at the nine-day Exponential Moving Average (EMA) around 149.22. A breakout above this level could reduce bearish momentum and enable the pair to test the "throwback support turned resistance" at 154.50, followed by the 50-day EMA at 155.58.

USD/JPY: Daily Chart