- The Japanese yen is having trouble attracting buyers, even though inflation figures are a bit higher than anticipated.
- Uncertainty regarding when the Bank of Japan (BOJ) will hike rates continues to weigh on the yen.
- The USD bulls are in control before Federal Reserve Chairman Powell’s upcoming speech, supporting the USD/JPY pair.
The Japanese yen (JPY) is on a downward trend against the stronger US dollar (USD) for a second consecutive day, hitting a three-week low during Friday’s Asian session. The ongoing uncertainty about the BOJ’s next interest rate hike is keeping the yen under pressure. Notably, Japan’s National Consumer Price Index (CPI) data shows persistent inflation, which could encourage the BOJ to adjust its policies further.
At the same time, the US dollar has been on a generally positive trajectory since August 6, reaching its peak amid diminishing expectations for aggressive policy easing from the Federal Reserve. This increases support for the USD/JPY pair, helping it trade above the mid-147.00s. Although the current trend seems favorable, traders may choose to hold off on new positions as they await Chairman Jerome Powell’s speech at the Jackson Hole Symposium.
Ahead of Powell’s speech, the Japanese yen is falling amid uncertainty in the BOJ rate
- The Japanese Statistics Bureau reported today that the National Consumer Price Index (CPI) inched down from 3.1% in July to 3.1% (yes, the same number again). The core CPI, which excludes fresh food prices, declined from 3.3% in June to 3.1%, marking its lowest level since November 2024.
- Despite this, the reading was slightly above the expected 3%. Moreover, the core CPI, closely watched by the BOJ, rose by 3.4% year-on-year in July after excluding fresh food and energy costs, keeping hopes alive for further policy adjustments by the BOJ.
- Still, unsure investors aren’t really helping to draw in buyers for the yen during today’s trading session. Nevertheless, the BOJ’s policy perspective remains notably different from that of the Federal Reserve.
- Market players are hedging against more aggressive moves from the US central bank, especially with signs of price pressure persisting. Traders anticipate that the Fed may restart its cutting cycle in September and possibly lower rates twice by year’s end.
- This sentiment was bolstered by the most recent unemployment data, which indicated a significant rise in new claims for unemployment benefits, the most substantial increase in three months. Additionally, the number of Americans receiving unemployment benefits hit its highest level in nearly four years.
- This suggests that labor market softness is extending into August. Furthermore, the Philadelphia Fed’s manufacturing index decreased to -0.3 in August from 15.9 the previous month, fueling concerns over slowing US economic growth, reinforcing the expectation that the Fed will cut rates in the upcoming meeting.
- Tensions leading up to Powell’s speech at the Jackson Hole Symposium are also keeping USD bulls from making aggressive moves. The market is keenly watching for clues regarding the Fed’s potential rate cuts, which could drive further momentum for the USD and the USD/JPY pair.
USD/JPY is above 149.00 and seems ready to test a critical 200-day SMA
From a technical viewpoint, the recent breakthrough above the 148.00 level, which was the upper limit of a three-week trading range, appears to have energized the USD/JPY bulls. The daily chart indicates positive momentum, suggesting a path of least resistance is achievable. This could enable the pair to test the important 200-day simple moving average (SMA), currently situated just over the 149.00 round figure. If buying momentum continues, there may even be another attempt to reclaim the important psychological 150.00 mark.
On the flip side, any corrective pullbacks might attract new buyers, finding support around the 148.00 mark. Below that, horizontal support at 147.80 could act as a cushion, followed by a further decline towards the 147.30 vicinity, potentially reaching the 147.00 threshold. A decisive break below this level would likely shift the outlook bearish in the short term.
