The Japanese Yen (JPY) rebounded from earlier losses on Monday, although trading activity remained thin due to the holiday. This fluctuation is attributed to concerns over the Bank of Japan‘s (BoJ) reluctance to raise interest rates in the near future.
During Friday’s meeting, the BoJ held its interest rate target steady at 0.15-0.25%. BoJ Governor Kazuo Ueda emphasized the bank’s commitment to adjusting monetary easing as necessary to meet economic and inflation goals. He noted that while Japan’s economy shows moderate recovery, underlying weaknesses persist.
The US Dollar (USD) continued its upward trend as Treasury yields bounced back. However, the Greenback may face challenges amid increasing expectations of further rate cuts by the US Federal Reserve (Fed) in 2024. The CME FedWatch Tool indicates a 50% probability of a 75 basis point reduction, bringing rates to a range of 4.0-4.25% by year-end. Traders are also anticipating US Purchasing Managers’ Index (PMI) data set to be released later in the North American session.
Market Movers: Yen Weakens Amid Concerns Over BoJ Delays
Atsushi Mimura, Japan’s newly appointed “top currency diplomat,” warned in an interview with NHK that previously accumulated Yen carry trades are likely mostly unwound. He cautioned that a resurgence of such trades could lead to increased market volatility, stating, “We are always monitoring the markets to ensure that does not happen.”
Philadelphia Fed President Patrick Harker remarked that the US central bank has navigated a challenging economic environment effectively, likening monetary policy to driving a bus, where maintaining balance is crucial.
Japan’s Finance Minister Shunichi Suzuki noted that he would continue to analyze the impact of recent US rate cuts on Japan’s economy. He expressed alignment with the Fed’s perspective that the US economy is expected to grow.
Japan’s Consumer Price Index (CPI) rose to 3.0% year-on-year in August, its highest level since October 2023, while the Core National CPI reached a six-month high of 2.8%. Additionally, Japan’s Merchandise Trade Balance recorded a trade deficit of ¥695.30 billion in August, larger than the previous month but significantly lower than market expectations.
Technical Analysis: USD/JPY Tests Key Resistance Levels
As of Monday, USD/JPY is trading around 144.40. The pair is moving higher within a descending channel, and a break above the upper boundary could indicate a shift from bearish to bullish sentiment. The 14-day Relative Strength Index (RSI) is slightly below the 50 level, with a breakthrough above this threshold potentially signaling bullish momentum.
Immediate resistance is noted at the upper channel boundary near 144.70. A breakout above this level could propel the pair toward the psychological resistance at 145.00. On the downside, support is anticipated at the 21-day Exponential Moving Average (EMA) at 143.76, followed by the nine-day EMA at 143.00. A decline below this level may lead the pair to revisit 139.58, the lowest level since June 2023.
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