The Japanese Yen (JPY) gains ground against the US Dollar (USD) on Thursday. This upside occurred as Japan’s Gross Domestic Product (GDP) growth for the second quarter surpassed expectations, supporting the argument for a potential near-term interest rate hike by the Bank of Japan (BoJ).
Japanese Economy Minister Yoshitaka Shindo stated that the economy is anticipated to recover gradually as wages and income improve. Shindo also added that the government will collaborate closely with the Bank of Japan to implement flexible macroeconomic policies.
However, the USD/JPY pair received support from the improved US Dollar amid higher Treasury yields. However, the potential for further gains in the Greenback may be constrained by increasing expectations of at least a 25 basis point rate cut by the US Federal Reserve (Fed) in September.
The moderate US Consumer Price Index (CPI) data has sparked debate about the extent of the Fed’s potential rate cut in September. Traders are favoring a more modest 25 basis point reduction, with a 60% probability, while a 50 basis point cut is still on the table. According to CME FedWatch, there is a 36% chance of the larger cut occurring in September.
USD/JPY trades around 147.40 on Thursday. The daily chart analysis shows that the pair is positioned slightly below the nine-day Exponential Moving Average (EMA), suggesting a short-term bearish trend. Additionally, the 14-day Relative Strength Index (RSI) is positioned slightly above the 30 level, suggesting a potential for a correction.
In terms of support levels, the USD/JPY pair may navigate the region around a seven-month low of 141.69, reached on August 5. Further downside could see the pair approaching a secondary support level at 140.25.
On the upside, the USD/JPY pair may encounter immediate resistance at the nine-day Exponential Moving Average (EMA) around the 147.53 level, followed by the 50-day EMA at 153.40 level, with the potential to test the resistance level at 154.50, where previous support has now turned into resistance.
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the Swiss Franc.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | 0.03% | -0.06% | -0.03% | -0.03% | -0.33% | 0.03% | -0.03% | |
EUR | -0.03% | -0.10% | -0.08% | -0.05% | -0.44% | -0.17% | -0.06% | |
GBP | 0.06% | 0.10% | 0.06% | 0.05% | -0.34% | -0.07% | 0.14% | |
JPY | 0.03% | 0.08% | -0.06% | -0.00% | -0.33% | -0.09% | 0.09% | |
CAD | 0.03% | 0.05% | -0.05% | 0.00% | -0.31% | -0.12% | 0.09% | |
AUD | 0.33% | 0.44% | 0.34% | 0.33% | 0.31% | 0.26% | 0.46% | |
NZD | -0.03% | 0.17% | 0.07% | 0.09% | 0.12% | -0.26% | 0.20% | |
CHF | 0.03% | 0.06% | -0.14% | -0.09% | -0.09% | -0.46% | -0.20% |
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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