The Japanese Yen (JPY) retraces its recent gains against the US Dollar (USD), with trading volumes likely to be low due to the Japanese markets being closed for Mountain Day. Support for the USD/JPY pair comes from stronger-than-expected US economic data released last week, leading traders to reduce their expectations for interest rate cuts by the US Federal Reserve.
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 CME FedWatch Tool indicates a 46.5% chance of a 50-basis point rate cut by the Fed at the September meeting, a significant decrease from the 74.0% probability reported a week ago.
Last week, Japan's monetary policy outlook showed that Bank of Japan’s (BoJ) officials have indicated a readiness to raise rates further, although they have become more cautious due to increased market volatility. Meanwhile, Japan’s Finance Minister Shunichi Suzuki emphasized that monetary policy decisions fall under the purview of the Bank of Japan, while they continue to monitor market developments closely, as reported by Reuters.
USD/JPY trades around 147.00 on Monday. The daily chart analysis shows that the pair is positioned above the descending channel, suggesting a weakening of a bearish bias. Moreover, the 14-day Relative Strength Index (RSI) is at the 30 level. If the RSI moves toward 50, it could signal a potential improvement in the pair's momentum.
For support levels, the USD/JPY pair may test the upper boundary around the 145.50 level. If it breaks below this level, the pair could face downward pressure, potentially pushing it toward throwback support at 140.25, and further down to the lower boundary of the descending channel near 137.00.
On the upside, the USD/JPY pair could test the immediate barrier at the nine-day Exponential Moving Average (EMA) around the 147.75 level. A breakout above this level could diminish bearish momentum and allow the pair to approach the "throwback support turned resistance" at 154.50.
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the weakest against the Australian Dollar.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | 0.02% | 0.03% | 0.32% | 0.00% | -0.13% | -0.13% | 0.12% | |
EUR | -0.02% | 0.04% | 0.27% | -0.02% | -0.28% | -0.15% | 0.12% | |
GBP | -0.03% | -0.04% | 0.51% | -0.05% | -0.32% | -0.20% | 0.09% | |
JPY | -0.32% | -0.27% | -0.51% | -0.30% | -0.52% | -0.45% | -0.22% | |
CAD | -0.01% | 0.02% | 0.05% | 0.30% | -0.20% | -0.14% | 0.15% | |
AUD | 0.13% | 0.28% | 0.32% | 0.52% | 0.20% | 0.12% | 0.40% | |
NZD | 0.13% | 0.15% | 0.20% | 0.45% | 0.14% | -0.12% | 0.28% | |
CHF | -0.12% | -0.12% | -0.09% | 0.22% | -0.15% | -0.40% | -0.28% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.
The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.
A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. With wage inflation becoming a cause of concern, the BoJ looks to move away from ultra loose policy, while trying to avoid slowing the activity too much.
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