Japanese Yen advances as BoJ Governor Ueda indicates further rate hikes – FXStreet

• The Japanese yen rose following hawkish comments from Bank of Japan Governor Ueda in the Diet.
• The diverging policy outlook of the two central banks has caused the USD/JPY pair to fall.
• The US dollar fell following Fed Chairman Powell’s dovish tone at the Jackson Hole Symposium.

The Japanese Yen (JPY) has continued to rise for a second consecutive day as hawkish comments from Bank of Japan Governor Kazuo Ueda contrast with a more dovish stance from Federal Reserve Chairman Jerome Powell.

Bank of Japan Governor Ueda said in a Diet session on Friday that the BOJ could raise interest rates further if its economic outlook proves accurate. Moreover, nationwide Consumer Price Index (CPI) inflation data for July remained at its highest level since February, cementing the BOJ’s hawkish stance on its policy outlook.

The US Dollar (USD) fell as the likelihood of a rate cut in September increased. Federal Reserve Chairman Jerome Powell said at the Jackson Hole Symposium that “it is time to adjust policy.” However, Powell did not say when the rate cuts would start or how big they would be.

Traders expect the U.S. central bank to potentially cut interest rates by at least 25 basis points in September. According to the CME FedWatch tool, the market is now fully expecting the Federal Reserve to cut interest rates by at least 25 basis points (bps) at its September meeting.

Daily Digest Market Trends: Yen strengthens after hawkish comments from Bank of Japan Governor Ueda

• Bloomberg reported on Friday that Philadelphia Fed President Patrick Harker stressed the need for the US central bank to gradually lower interest rates, while Reuters reported that Chicago Fed President Austen Goolsby noted that monetary policy is currently at its tightest and that the Fed is focused on achieving its employment goal.
• Bank of Japan (BoJ) Governor Kazuo Ueda said in a speech to the Diet on Friday that the bank is “not considering selling JGBs as a means of adjusting interest rates.” He noted that the reduction in JGB purchases would amount to only about 7-8% of the balance sheet, a relatively small reduction. Ueda added that if the economy develops as expected, there may come a time when interest rates will need to be adjusted slightly further.
• Japan’s national consumer price index rose 2.8% year-on-year in July, maintaining this increase for the third consecutive month and maintaining its highest level since February. The national consumer price index excluding fresh food rose 2.7%, as expected, to its highest since February.
• The U.S. composite PMI fell slightly to 54.1 in August, the lowest level in four months, from 54.3 in July, but still beat market expectations of 53.5, signaling continued expansion in U.S. business activity, marking the 19th consecutive month of growth.
• Most Fed officials agreed last month that they would likely cut interest rates at their September meeting as long as inflation remains subdued, according to minutes of the July FOMC policy meeting.

Technical reasons why: USD/JPY falls to the 144.00 area

USD/JPY is trading around 143.90 on Friday. Analyzing the daily chart, the pair is below the descending trend line, suggesting a bearish trend. However, the 14-day Relative Strength Index (RSI) is just above 30, suggesting that the bearish trend may continue.

On the downside, the USD/JPY pair is likely to hover around the seven-month low of 141.69, recorded on August 5. A drop below this level could see the pair heading towards the throwback support level at 140.25.

In terms of resistance, the USD/JPY pair is likely to test the immediate barrier of the descending trend line around the psychological level of 145.00, followed by the 9-day exponential moving average (EMA) at the 145.74 level. A breakout above the 9-day EMA could see the pair find support to explore the retracement-turned-resistance area at the 154.50 level.

USD/JPY: Daily Chart