Japanese Yen holds ground despite increasing doubts over BoJ rate hikes – FXStreet

• The Japanese yen has weakened slightly as the Bank of Japan is in no rush to raise interest rates.
• Japanese Finance Minister Suzuki said he expected the Bank of Japan to adopt appropriate monetary policy measures.
• Minneapolis Fed President Neel Kashkari believes additional interest rate cuts should and will come in 2024.

The Japanese Yen (JPY) fell against the US Dollar (USD) on Tuesday as concerns grew that the Bank of Japan (BoJ) was in no hurry to raise interest rates. Following the BOJ's policy decision on Friday, Governor Kazuo Ueda noted that while Japan's economy is experiencing a gradual recovery, signs of underlying weakness remain.

Finance Minister Shunichi Suzuki said on Tuesday that he is “closely monitoring the impact of the central bank's monetary policy.” Suzuki said he expects the Bank of Japan to implement appropriate monetary policy measures in close coordination with the government.

The USD/JPY pair is likely to weaken due to rising expectations of further interest rate cuts by the US Federal Reserve in 2024. According to the CME FedWatch tool, the market is pricing in a 50% chance of a 75 basis points rate cut, putting Fed interest rates in the range of 4.0% to 4.25% by the end of this year.

Daily Digest Market Trends: Japanese Yen remains weak on Bank of Japan's dovish stance

• Jibun Bank's Japan Composite Purchasing Managers' Index (PMI) fell to 52.5 in September from a 15-month high of 52.9 in August. Despite the decline, private sector activity has increased for eight consecutive months this year, driven mainly by the services sector. The services sector PMI rose to 53.9 in September from a final reading of 53.7 in the previous month.
• The S&P Global Composite PMI showed growth slowing in September, falling to 54.4 from 54.6 in August. The manufacturing PMI unexpectedly fell to 47.0, indicating a contraction, while the services PMI expanded more than expected, reaching 55.4.
• Minneapolis Federal Reserve Bank President Neel Kashkari said on Monday he believes additional interest rate cuts should and will come in 2024. However, he expects future cuts to be smaller than the one at the September meeting, according to Reuters.
• “We're likely going to need to cut rates further over the next year. Interest rates need to come down significantly,” Chicago Fed President Austen Goolsby said. Additionally, Atlanta Fed President Raphael Bostic said on Monday that the U.S. economy is approaching normal levels of inflation and unemployment, and the central bank also needs to “normalize” monetary policy, according to Reuters.
• On Monday, Japan's new “top foreign exchange diplomat,” Atsushi Mimura, said in an interview with NHK that the yen carry trades that had built up in the past were likely almost completely unwound. Mimura warned that market volatility could increase if such trades increased again. “We are constantly monitoring the market to prevent that from happening,” he added.
• Japan's consumer price index (CPI) rose to 3.0% year-on-year in August, up from 2.8% the previous month and the highest level since October 2023. Meanwhile, the core national CPI, which excludes fresh food, rose to a six-month high of 2.8%, marking the fourth consecutive month of increases and in line with market expectations.
• “Today's decision reflects our growing confidence that, by appropriately adjusting our policy approach, we can maintain strong labor markets, achieve moderate economic growth, and lower inflation to a sustainable 2 percent level,” Federal Reserve Chairman Jerome Powell said of the bold 50 basis point rate cut.

Technical reasons why: USD/JPY maintains its position above the 9-days EMA around 143.50.

USD/JPY is trading around 143.70 on Tuesday. Daily chart analysis shows that the pair is moving inside a descending channel, indicating a bearish trend. Moreover, the 14-day Relative Strength Index (RSI) is just below the 50 level, intensifying the bearish sentiment.

On the downside, the USD/JPY pair might test the 9-day EMA at the 143.01 level. A drop below this level could see the pair explore the 139.58 area, which could mark its lowest price since June 2023.

Meanwhile, immediate resistance is being found at the upper end of the descending channel near the 144.30 level. A breakout above this level can potentially send the USD/JPY pair challenging the psychological barrier at 145.00.

USD/JPY: Daily Chart