- The Japanese Yen struggles to lure buyers despite slightly higher-than-expected inflation figures.
- The uncertainty over the likely timing of the next BoJ rate hike continues to undermine the JPY.
- The USD bulls retain control ahead of Fed Chair Powell’s speech and support the USD/JPY pair.
The Japanese Yen (JPY) continues losing ground against a broadly firmer US Dollar (USD) for the second straight day and drops to a three-week low during the Asian session on Friday. The uncertainty over the likely timing of the next interest rate hike by the Bank of Japan (BoJ) continues to undermine the JPY, which fails to gain any respite from Japan’s consumer inflation figures. In fact, Japan’s National Consumer Price Index (CPI) indicated that the underlying inflation remained sticky and backed the case for further policy normalization by the BoJ.
Meanwhile, the US Dollar (USD) retains its positive bias and climbs to the highest level since August 6 amid diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed). This provides an additional boost to the USD/JPY pair and contributes to the intraday positive move beyond mid-147.00s. The fundamental backdrop suggests that the path of least resistance for the pair is to the upside. Traders, however, might refrain from placing fresh bets and opt to wait for Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium.
Japanese Yen remains depressed amid BoJ rate hike uncertainty, ahead of Powell’s speech
- Japan’s Statistics Bureau reported this Friday that the National Consumer Price Index (CPI) cooled to the 3.1% YoY rate in July from 3.1% in the previous month. Further details revealed that the core gauge, which strips out costs for fresh food, eased from 3.3% in June to 3.1%, marking its lowest level since November 2024.
- The latter, however, was slightly higher than consensus estimates for a reading of 3%. Moreover, the core CPI, which strips out prices of both fresh food and energy and is closely monitored by the Bank of Japan, rose 3.4% in July from a year earlier. This, in turn, keeps hopes alive for further policy normalization by the BoJ.
- Investors, however, remain uncertain about the likely timing of the next BoJ rate hike, which, in turn, fails to assist the Japanese Yen (JPY) in attracting any meaningful buyers during the Asian session on Friday. Nevertheless, the BoJ policy outlook still marks a significant divergence in comparison to the Federal Reserve.
- Market participants pared bets for a more aggressive policy easing by the US central bank amid signs of a gain of momentum in price pressures. That said, traders are pricing in a greater chance that the Fed will resume its rate-cutting cycle in September and lower borrowing costs twice by the end of this year.
- The bets were lifted by Thursday’s US Jobless Claims data, showing that the number of Americans filing new applications for unemployment relief rose by the most in about three months. Moreover, US citizens collecting jobless benefits in the prior week climbed to the highest level in nearly four years.
- The data indicated that the recent labor market softness continued into August. Moreover, the Philly Fed Manufacturing Index tumbled to -0.3 in August, from 15.9 the prior month, renewing concerns about slowing US economic growth. This backs the view that the Fed would lower rates at its next meeting.
- This, along with nervousness ahead of Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium, holds back the US Dollar bulls from placing aggressive bets. Powell’s comments will be looked for cues about the Fed’s rate-cut path, which should provide a fresh impetus to the USD and the USD/JPY pair.
USD/JPY seems poised to surpass 149.00 and test 200-day SMA pivotal ressitance
From a technical perspective, the overnight breakout through the 148.00 mark, or the top boundary of a three-week-old trading range, was seen as a key trigger for the USD/JPY bulls. The subsequent move higher and positive oscillators on the daily chart suggest that the path of least resistance for spot prices remains to the upside. Hence, some follow-through strength towards testing the very important 200-day Simple Moving Average (SMA), currently pegged just above the 149.00 round figure, looks like a distinct possibility. Some follow-through buying should allow the pair to make a fresh attempt towards reclaiming the 150.00 psychological mark.
On the flip side, any corrective pullback could attract fresh buyers and find decent support near the 148.00 mark. This is closely followed by the 147.80 horizontal support, below which the USD/JPY pair could slide further towards the 147.30 area before eventually dropping to the 147.00 round figure. A convincing break below the latter would negate the positive outlook and shift the near-term bias in favor of bearish traders.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
Source: https://www.fxstreet.com/news/japanese-yen-hits-three-week-low-against-usd-after-domestic-inflation-data-202508220230
