The Japanese Yen (JPY) is losing ground against the US Dollar (USD) on Tuesday, fueled by concerns that the Bank of Japan (BoJ) is not swiftly moving to raise interest rates. Following the BoJ’s policy decision last Friday, Governor Kazuo Ueda indicated that rate increases would be appropriate only if inflation trends align with forecasts.
Ueda emphasized Japan’s deeply negative real interest rates, which are intended to stimulate the economy and increase prices. Meanwhile, Japan’s Finance Minister Shunichi Suzuki expressed his commitment to closely monitor the effects of central banks’ policies and assured that the BoJ would implement suitable measures in coordination with the government.
The USD/JPY pair may face downward pressure due to expectations of further rate cuts from the US Federal Reserve (Fed) in 2024, with the CME FedWatch Tool indicating a 50% chance of a 75 basis point reduction, potentially lowering the Fed’s rate to 4.0-4.25% by year-end.
Market Movements: JPY Remains Subdued Amid Dovish Sentiment
The Jibun Bank Japan Composite PMI decreased to 52.5 in September, down from 52.9 in August, although it marks the eighth consecutive month of growth, primarily driven by the service sector. The Services PMI rose to 53.9, contrasting with a decline in the Manufacturing PMI, which fell to 47.0.
Amidst these developments, Minneapolis Fed President Neel Kashkari mentioned on Monday that he anticipates further rate cuts in 2024, though he expects these to be less significant than those from September. Chicago Fed President Austan Goolsbee echoed this sentiment, stating that more cuts are likely necessary.
Japan’s new “top currency diplomat,” Atsushi Mimura, warned that unwinding Yen carry trades could increase market volatility, while Japan’s Consumer Price Index (CPI) rose to 3.0% year-on-year in August, the highest level since October 2023.
Technical Analysis: USD/JPY Below Key Levels
Currently, USD/JPY trades around 143.70, moving within a descending channel that signals a bearish trend. The 14-day Relative Strength Index (RSI) sits just below 50, reinforcing the bearish outlook.
On the downside, the pair may test the nine-day EMA around 143.01, with a break below this level potentially leading to a drop toward 139.58, marking its lowest point since June 2023. Conversely, immediate resistance is found at the upper boundary of the descending channel near 144.30, with a breakout above this level allowing the pair to challenge the psychological barrier of 145.00.
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