The Japanese Yen (JPY) has seen an uptick against the US Dollar (USD) on Wednesday, with the USD/JPY pair declining by 0.1% to around 159.00. This strengthening comes as speculation grows that the Bank of Japan (BoJ) will increase its policy rates by 25 basis points (bps) to 1.25% in the upcoming September meeting.
Analysts at Scotiabank have pointed out that there hasn’t been much new information from domestic data, stating that “fundamental releases…limited,” even though there are reports of significant adjustments to BoJ forecasts as major banks push their tightening predictions to this September. They’ve also mentioned that while the market is beginning to reassess the near-term policy direction, the bigger focus will likely be on the central bank’s overall tone as participants look beyond the September 18 meeting. This suggests that any hints regarding future normalization could be more impactful than the actual decision.
In other developments, a survey conducted by Reuters from August 17-24 revealed that 57% of economists expect the BoJ to raise interest rates by 25 bps to 1.25% in September. This marks a significant change from a July survey where only 5% anticipated an interest rate hike.
On the other hand, the US Dollar is trading lower as markets await the United States (US) Personal Consumption Expenditure Price Index (PCE) for July, set to be released at 12:30 GMT.
Inflation outlook steady as Wells Fargo sees only modest easing in PCE
Wells Fargo economists do not foresee any significant surprises in the inflation data for July. Referring to the latest Consumer Price Index (CPI) and Producer Price Index (PPI) reports, they suggest a modest 0.1% increase in the PCE deflator for July, which would bring the year-over-year rate down to 3.6%. Concurrently, they anticipate that “core PCE inflation” will rise by 0.2% for the month, maintaining the annual rate at 3.3%. This reinforces the sentiment that inflation pressures are easing only gradually rather than experiencing a steep decline.
USD/JPY Technical Analysis
Looking at the daily chart, USD/JPY is currently at 159.08, showing a bearish short-term tendency as it remains below the 20-day exponential moving average (EMA) of 159.46. Having pulled back from recent highs, the pair is under this short-term trend indicator, indicating pressure from the upside. The Relative Strength Index (RSI) is around 44, suggesting a slight negative lean, though it’s not in oversold territory.
For resistance, the immediate level is the 20-day EMA at 159.46, and a daily close above this point would be required to alleviate the current downside bias, potentially paving the way for a rise toward higher levels. With no nearby technical supports based on the available information, the pair seems vulnerable as long as it remains under 159.46. Thus, market movements will depend on whether sellers can continue driving prices down or if buyers can reclaim the EMA barrier.
