The Japanese Yen (JPY) weakened against the US Dollar (USD) on Monday, trading around 142.20, after dovish comments from Japan’s incoming Prime Minister, Shigeru Ishiba. Ishiba, a former Defense Chief, stated on Sunday that Japan’s monetary policy should remain accommodative to support the country’s fragile economic recovery, according to The Japan Times. This indicates a continuation of the Bank of Japan‘s (BoJ) policy of low borrowing costs.
Adding to the Yen’s downward pressure, Japan’s Retail Trade data for August showed positive results. Retail sales grew by 2.8% year-on-year, exceeding expectations of 2.3% and the previous month’s upwardly revised 2.7% increase. On a monthly basis, seasonally adjusted Retail Trade rose by 0.8%, marking the largest increase in three months, up from July’s 0.2% gain.
In the US, traders are focusing on the possibility of an aggressive rate-cutting cycle by the Federal Reserve (Fed). Friday’s Core Personal Consumption Expenditures (PCE) Price Index data for August aligned with the Fed’s outlook that inflation is easing, prompting traders to bet on further rate cuts. The CME FedWatch Tool suggests a 42.9% probability of a 25-basis-point cut in November, while the likelihood of a 50-basis-point cut has risen to 57.1%.
Market Movers: Yen Faces Pressure as BoJ Policy Remains in Focus
Japan’s Chief Cabinet Secretary, Yoshimasa Hayashi, avoided commenting on stock market fluctuations but emphasized the importance of closely monitoring the economic situation both domestically and internationally. This comes as traders speculate on the BoJ’s next move, with its Monetary Policy Meeting Minutes last week revealing members’ concerns about inflation exceeding targets. Several members suggested a rate hike to 0.25%, though others advocated for a more moderate approach to adjusting monetary support.
The Yen is also sensitive to rising geopolitical tensions. Israel has expanded its military operations against Hezbollah in Lebanon and the Houthis in Yemen, raising fears of a regional conflict that could boost demand for safe-haven currencies like the Yen. However, BoJ Governor Kazuo Ueda recently signaled that Japan has time to evaluate conditions before making any policy adjustments, further easing expectations of imminent rate hikes.
Technical Outlook: USD/JPY Shifts Bearish After Breaking Ascending Channel
From a technical perspective, USD/JPY is trading around 142.20 after breaking below its ascending channel, signaling a shift from bullish to bearish momentum. The 14-day Relative Strength Index (RSI) is below the 50 level, confirming a bearish sentiment.
The pair faces support around 139.58, the lowest level since June 2023. On the upside, a recovery within the ascending channel could challenge the nine-day Exponential Moving Average (EMA) at 143.10. A break above this level might push the pair toward the upper boundary of the channel at 146.20, with the next target being the five-week high of 147.21, recorded on September 3.
In the near term, traders are closely watching the Fed’s rate-cut expectations and geopolitical developments, both of which could impact the USD/JPY outlook.
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