Japanese Yen loses ground, downside seems limited due to hawkish BoJ

• The Japanese Yen depreciates despite a hawkish sentiment surrounding the BoJ’s policy outlook.
• The JPY’s downside could be restrained as traders expect the BoJ to increase interest rates further.
• The US Dollar received downward pressure as US Fed Chair Powell signaled a rate cut soon.

The Japanese Yen (JPY) fell slightly against the US Dollar (USD) on Wednesday. However, conflicting policy outlooks from the Bank of Japan (BoJ) and the Federal Reserve (Fed) are exerting downward pressure on the USD/JPY pair. BoJ Governor Kazuo Ueda indicated in Parliament on Friday that the central bank might consider further interest rate hikes if its economic forecasts prove accurate.

The downside for the JPY may be limited by the hawkish sentiment surrounding the Bank of Japan (BoJ). Meanwhile, Fed Chair Jerome Powell remarked at the Jackson Hole Symposium that "the time has come for policy to adjust." However, Powell did not specify the timing or magnitude of potential rate cuts.

Additionally, San Francisco Federal Reserve President Mary Daly mentioned in a Bloomberg TV interview on Monday that "the time is upon us" to begin reducing interest rates, likely starting with a quarter-percentage point cut.

According to the CME FedWatch Tool, markets are fully anticipating at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting.

Daily Digest Market Movers: Japanese Yen depreciates despite a hawkish BoJ

• Japan’s Finance Minister Shunichi Suzuki stated on Tuesday that foreign exchange rates are influenced by a variety of factors, including monetary policies, interest rate differentials, geopolitical risks, and market sentiment. Suzuki added that it is difficult to predict how these factors will impact FX rates.
• US Durable Goods Orders surged by 9.9% month-over-month in July, rebounding from a 6.9% decline in June. This increase significantly outpaced the expected 4.0% rise, marking the largest gain since May 2020.
• Bloomberg reported on Friday that Philadelphia Fed President Patrick Harker emphasized the need for the US central bank to lower interest rates gradually. Meanwhile, Reuters reported that Chicago Fed President Austan Goolsbee noted that monetary policy is currently at its most restrictive, with the Fed now focusing on achieving its employment mandate.
• Bank of Japan (BoJ) Governor Kazuo Ueda addressed the Japanese parliament on Friday, stating that he is “not considering selling long-term Japanese government bonds (JGBs) as a tool for adjusting interest rates.” He noted that any reduction in JGB purchases would only account for about 7-8% of the balance sheet, which is a relatively small decrease. Ueda added that if the economy aligns with their projections, there could be a phase where they might adjust interest rates slightly further.
• Japan’s National Consumer Price Index increased by 2.8% year-on-year in July, maintaining this rate for the third consecutive month and remaining at its highest level since February. Additionally, the National CPI excluding Fresh Food rose by 2.7%, the highest reading since February, aligning with expectations.
• The US Composite PMI edged down to 54.1 in August, a four-month low, from 54.3 in July, but remained above market expectations of 53.5. This indicates continued expansion in US business activity, marking 19 consecutive months of growth.
• FOMC Minutes for July’s policy meeting indicated that most Fed officials agreed last month that they would likely cut their benchmark interest rate at the upcoming meeting in September as long as inflation continued to cool.

Technical Analysis: USD/JPY remains above 144.00

USD/JPY trades around 144.20 on Wednesday. Analysis of the daily chart shows that the pair is testing the downtrend line, suggesting a weakening bearish bias. However, the 14-day Relative Strength Index (RSI) remains slightly above 30, suggesting a confirmation of a bearish trend.

On the downside, if the USD/JPY pair stays below the downtrend line, it could hover around the seven-month low of 141.69, recorded on August 5. A break below this level might push the pair toward the throwback support at 140.25.

In terms of resistance, the USD/JPY pair may challenge the immediate barrier at the nine-day Exponential Moving Average (EMA) around the 145.23 level. A breakthrough above this level could pave the way for the pair to explore the area near the throwback-turned-resistance at 154.50.

USD/JPY: Daily Chart