The Japanese Yen (JPY) faced a decline against the US Dollar (USD) on Tuesday. However, the downside of the JPY may be limited as the Bank of Japan (BoJ) is highly expected to implement further rate hikes. Japan’s economy showed strong growth in the second quarter, with a 3.1% annualized increase, surpassing expectations. This growth raises the possibility of another near-term BoJ rate hike.
The BoJ had projected that a robust economic recovery would help inflation reach its 2% target sustainably, justifying further interest rate increases. BoJ Governor Kazuo Ueda is scheduled to discuss the central bank’s decision to raise interest rates in the previous month, signaling a continuation of BoJ’s efforts to unwind extensive monetary stimulus. The positive economic reports support the BoJ’s view and bode well for further rate hikes, although caution is advised as the last rate increase led to a significant spike in the Yen.
On the other hand, the US Dollar faced challenges following dovish remarks from Federal Reserve (Fed) officials. Minneapolis Fed President Neel Kashkari suggested the need for potential interest rate cuts in September due to concerns about a weakening labor market. Meanwhile, Federal Reserve Bank of San Francisco President Mary Daly emphasized a gradual approach to reducing borrowing costs, while Federal Reserve Bank of Chicago President Austan Goolsbee warned against maintaining a restrictive policy for longer than necessary.
In terms of technical analysis, USD/JPY hovers around 146.60, showing a short-term bearish trend. Support levels for the pair might test the seven-month low of 141.69, with further support at 140.25. On the upside, immediate resistance is seen around the nine-day Exponential Moving Average (EMA) at 147.41, followed by the 50-day EMA at 152.54. The Japanese Yen weakened against the Swiss Franc but showed mixed performance against other major currencies.
In terms of economic indicators, Japan’s Merchandise Trade Balance Total released by the Ministry of Finance is an important measure of the balance between imports and exports. A positive value indicates a trade surplus, which is crucial for the Japanese economy heavily reliant on exports. Any variations in these figures can have a significant impact on the domestic economy. Market analysts anticipate further clarity on potential responses from US policymakers through upcoming data releases and the Jackson Hole event, with expectations of a 25-basis point rate cut by the Fed in September.
Overall, the Japanese Yen’s downside against the US Dollar might be limited due to the prospect of additional rate hikes by the Bank of Japan. The strong economic growth in Japan and positive economic indicators support the BoJ’s view and raise hopes for further rate increases. Meanwhile, the US Dollar faces challenges amid dovish Fedspeak, signaling potential interest rate cuts in the near future. Market movements and economic indicators would provide more insights into the future direction of both currencies.
