Japanese Yen remains subdued as Fed’s Powell says 50 bps cuts are not a new pace – FXStreet

• The Japanese yen fell after Fed Chairman Powell stressed that a 50 basis point rate cut was not a “new pace.”
• Hawkish views on the Bank of Japan could limit the yen's decline.
• Federal Reserve policymakers raised their longer-term outlook for the federal funds rate to 2.9% from 2.8%.

The Japanese Yen (JPY) pared intraday losses but remained weak against the US Dollar (USD) on Thursday. The risk-sensitive JPY continued to weaken despite the US Federal Reserve's aggressive interest rate cut of 50 basis points (bps) on Wednesday.

Traders are now focused on the Bank of Japan (BoJ) policy decision scheduled for Friday, as it is expected that interest rates will remain on hold, leaving room for future hikes. Additionally, Japan's nationwide Consumer Price Index (CPI) data will also be closely watched, as the inflation report could provide new insights into the BOJ's future interest rate direction.

The rise in the USD/JPY pair can be attributed to comments made by Federal Reserve Chairman Jerome Powell. In a press conference after the meeting, Powell said the Fed is in no rush to ease policy, emphasizing that a half-percentage point rate cut is not a “new pace.”

Federal Reserve policymakers updated their quarterly economic forecasts, raising their median forecast for the unemployment rate at the end of 2024 to 4.4%, up from 4.0% in June. They also raised their longer-term forecast for the federal funds rate to 2.9%, up from 2.8%.

Daily Digest Market Trends: Japanese Yen Falls as Fed Raises Long-Term Interest Rate Outlook

• The Federal Open Market Committee (FOMC) lowered the federal funds rate to the range of 4.75% to 5.0%, the first rate cut by the Fed in more than four years.
• “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 in a statement about the bold 50 basis point rate cut.
• Japan's total merchandise trade balance widened to a deficit of 695.3 billion yen in August from 628.7 billion yen in the previous month, but well below market expectations of a deficit of 1.38 trillion yen. Exports increased 5.6% from a year earlier, the ninth consecutive month of increase, but below the 10.0% forecast. Imports increased just 2.3%, the lowest in five months and well below the 13.4% increase expected.
• JPMorgan CEO Jamie Dimon said on Tuesday that whether the Federal Reserve cuts interest rates by 25 basis points or 50 basis points, the impact “won't be that significant.” Dimon stressed that “the Fed needs to cut interest rates,” but noted that such moves would be relatively small in the grand scheme of things because “the real economy is running” beneath the Fed's rate changes, according to Bloomberg.
• U.S. retail sales rose 0.1% month-on-month in August following a revised 1.1% increase in July, beating expectations of a 0.2% decline and signaling strength in consumer spending. Meanwhile, retail sales control group rose 0.3%, slightly down from the previous month's 0.4% increase.
• Finance Minister Shunichi Suzuki said on Tuesday that sudden foreign exchange (FX) fluctuations are undesirable. Suzuki stressed that authorities will closely monitor how exchange rate fluctuations affect the Japanese economy and people's lives. According to Reuters, the government will continue to evaluate the impact of the strong yen and respond accordingly.
• Volkmar Bauer, a forex analyst at Commerzbank, expected the Bank of Japan to remain on the sidelines this week. Bauer noted that the Federal Reserve's actions will likely have a larger impact on the USD/JPY pair, suggesting that the yen will likely fall below 140.00 yen per USD even if the BOJ does not raise interest rates.
• The BOJ may raise interest rates to 0.5% by the end of 2024, 0.75% in 2025 and 1.0% by the end of 2026, according to Fitch Ratings' latest report on the bank's policy outlook published on Friday.

Technical reasons why: USD/JPY is rising to the 143.00 area with the next barrier being the 21-day EMA.

USD/JPY is trading around 143.00 on Thursday. Analysis of the daily chart shows that the pair is stable within a descending channel, confirming the bearish outlook. However, the 14-day Relative Strength Index (RSI) is rising towards the 50 level and the price is above the 9-day Exponential Moving Average (EMA), suggesting a possible correction to the upside.

On the upside, the USD/JPY pair may initially face resistance at the 21-day EMA at the 143.73 level and then at the upper limit of the descending channel around 145.00.

On the support side, the USD/JPY pair may find immediate support at 139.58, the lowest level since June 2023, followed by the lower boundary of the descending channel around 137.75.

USD/JPY: Daily Chart