Japanese Yen depreciates as US Dollar gains ground due to higher Treasury yields – FXStreet

• The Japanese yen pared its intraday gains despite the hawkish outlook for the Bank of Japan.
• Japan’s parliament is due to hold a special session to discuss the Bank of Japan’s interest rate hike last month.
• Weak U.S. Producer Price Index (PPI) data has reduced the chances of a significant Fed rate cut in September.

The Japanese yen (JPY) pared its one-day gains on Wednesday, despite growing expectations that the Bank of Japan (BoJ) will raise interest rates again in 2024. Japan’s parliament is scheduled to hold an extraordinary session on August 23 to discuss the Bank of Japan’s (BoJ) decision to raise interest rates last month. Bank of Japan Governor Kazuo Ueda is scheduled to attend the session, according to government sources cited by Reuters.

Safe-haven flows may have supported the yen amid rising geopolitical tensions in the Middle East. The BBC reported on Tuesday that the United States sent a missile-equipped submarine to the Middle East. Additionally, Israeli forces continued operations near Khan Yunis in southern Gaza on Monday. CBC News reported that Palestinian doctors reported that at least 18 people were killed in Monday’s Israeli attack on Khan Yunis.

At the time of writing, the US dollar is holding firm amid rising government bond yields. However, the dollar was put in a bind by the US Producer Price Index (PPI) data released on Tuesday, which came in below expectations, reducing expectations that the US Federal Reserve (Fed) will make a significant interest rate cut in September. Investors will likely be keeping an eye on the US Consumer Price Index (CPI) inflation report on Wednesday, which could provide some hints on the direction of the Fed’s interest rate cut.

Daily Digest Market Trends: Japanese yen strengthens as Bank of Japan likely to raise interest rates again

• Prime Minister Fumio Kishida announced at a press conference on Wednesday that he would not run in the September election for the presidency of the Liberal Democratic Party. Kishida stressed the need to fight Japan’s deflationary economy by promoting wage and investment growth and achieving his goal of expanding Japan’s GDP to 600 trillion yen.
• Jane Foley, senior FX strategist at Rabobank, said a flurry of US data this week and the Jackson Hole meeting next week will give the market a clearer insight into the potential response from US policymakers, but their main expectation is that the Fed will likely cut interest rates by 25 basis points in September and further by the end of the year.
• The U.S. Producer Price Index (PPI) rose 2.2% year-over-year in July from 2.7% in June, missing the market forecast of 2.3%. Meanwhile, the PPI rose 0.1% month-over-month after a 0.2% increase in June. Core PPI rose 2.4% year-over-year in July, up from the previous reading of 3.0%. The index missed the 2.7% forecast. Core PPI was flat.
• Atlanta Federal Reserve Bank President Raphael Bostic said on Tuesday that recent economic data has increased his confidence that the Fed can hit its 2% inflation target, but he suggested more evidence is needed before supporting a rate cut, according to Reuters.
• Federal Reserve Governor Michelle Bowman said on Sunday that she continues to see rising risks to inflation and continued strength in the labor market. She suggested the Fed may not be ready to cut interest rates at its next meeting in September, Bloomberg reported.
• In the outline of the Bank of Japan’s monetary policy meeting held on July 30 and 31, several members expressed the view that the economic and price situation is progressing as expected. The Bank of Japan is aiming for a neutral interest rate of “at least about 1%” as a medium-term target.
• According to the minutes of the Bank of Japan’s June meeting, some members expressed concern that higher import prices due to the recent depreciation of the yen could pose a risk to inflation. One member emphasized that cost-push inflation could worsen underlying inflation if it leads to higher inflation expectations and wage increases.

Technical reasons why: USD/JPY is trading close to the 147.00 level with the 9-day EMA as the nearest barrier.

USD/JPY is trading around 146.80 on Wednesday. Daily chart analysis shows that the pair is below the 9-day Exponential Moving Average (EMA), suggesting a bearish trend in the short term. Moreover, the 14-day Relative Strength Index (RSI) is at the 30 level, suggesting a possible correction.

As for support levels, the USD/JPY pair may test the seven-month low of 141.69, recorded on August 5, followed by the second support level at 140.25.

On the upside, the pair might face immediate resistance at the 9-day EMA around 147.45. A break above this level will weaken the bearish momentum and the pair might approach the 50-day EMA at 153.40 and then test the previous support-turned-resistance level at 154.50.

USD/JPY: Daily Chart