On Thursday, the Japanese Yen (JPY) retraced recent gains against the US Dollar (USD) as the Federal Reserve (Fed) adopted a hawkish stance, boosting the USD/JPY pair. In its latest policy meeting on Wednesday, the Federal Open Market Committee (FOMC) maintained the benchmark lending rate unchanged at 5.25%–5.50%, as widely expected.
Market sentiment suggests cautious trading ahead of the Bank of Japan‘s (BoJ) upcoming policy decision on Friday, where analysts anticipate no change in interest rates but await updates on potential adjustments to the central bank‘s monthly bond purchases.
The US Dollar Index (DXY), reflecting USD performance against major currencies, rebounded following the Fed’s more restrictive outlook. The FOMC now anticipates only one rate cut this year, down from the three forecasted in March.
According to the CME FedWatch Tool, the probability of a September rate cut of at least 25 basis points decreased to 61.5%, down from 69.4% a week earlier.
Investor attention now turns to key US economic indicators such as the weekly Initial Jobless Claims and Producer Prices Index (PPI) on Thursday, expected to provide further insights into the US economic landscape.
Market Analysis and Insights
Fed Chair Jerome Powell, in a post-meeting press conference, underscored the effectiveness of the Fed’s monetary policy in managing inflation. Meanwhile, recent data indicated a slight moderation in US Consumer Price Index (CPI) growth, with core CPI rising 3.4% year-over-year in May.
In contrast, Japanese Producer Price Index (PPI) data revealed a higher-than-expected increase of 2.4% year-on-year in May, raising concerns about potential consumer inflation in Japan.
Japanese Finance Minister Shunichi Suzuki emphasized the importance of maintaining economic growth and fiscal health to bolster confidence in Japan’s fiscal policies.
Ahead of the BoJ’s policy decision, nearly two-thirds of economists surveyed by Reuters anticipate the commencement of tapering in monthly bond purchases—a move aimed at gradually reducing the central bank’s balance sheet.
Chief Economist Takeshi Minami noted the diminishing necessity for large-scale government bond purchases in Japan, given the proximity of inflation to the 2% target.
BoJ Governor Kazuo Ueda indicated a gradual rise in inflation expectations but emphasized that significant progress toward the 2% inflation goal has yet to be achieved. Ueda hinted at reducing bond purchases as part of an exit strategy from massive monetary stimulus.
Technical Outlook: USD/JPY Analysis
USD/JPY is currently trading around 156.90, consolidating within an ascending channel pattern on the daily chart. The 14-day Relative Strength Index (RSI) above 50 indicates bullish momentum.
Key resistance levels include the psychological barrier at 157.00, with potential further upside toward 158.00 and 158.80. Conversely, support is seen near the lower boundary of the ascending channel and the 50-day Exponential Moving Average (EMA) at 155.09, with additional support around 152.80.
The outlook remains contingent on upcoming US economic data releases and the Bank of Japan’s policy decisions, influencing market sentiment and directional movements for the USD/JPY pair.
Related Topics:
