Japanese Yen remains heavy after BoJ commentary

08/28/2024 07:55:46 GMT|ByAkhtar Faruqui

The Japanese Yen remains in the red after cautious remarks from BoJ policymaker Himino.
The US Dollar rebounds amid a risk-off mood, but the upside appears limited on dovish Fed bets.
The focus now shifts toward Fed policymaker Bostic's speech and Nvidia earnings report.

The Japanese Yen (JPY) stays on the back foot against the US Dollar (USD) early Wednesday. The USD/JPY pair clings to recovery gains, courtesy of the cautious comments from the Bank of Japan (BoJ) Deputy Governor Ryozo Himino, who said that "BoJ will adjust the degree of monetary accommodation if it has growing confidence that its outlook for economic activity and prices will be realized."

However, divergent policy outlooks between the BoJ and the Federal Reserve (Fed) could restrict the USD/JPY pair's uptick.

The downside for the JPY may be limited by the hawkish sentiment surrounding the BoJ, with the central bank on track to raise interest-rates further. Meanwhile, Fed Chair Jerome Powell remarked at the Jackson Hole Symposium that "the time has come for policy to adjust." However, Powell did not specify the timing or magnitude of potential rate cuts.

Additionally, San Francisco Federal Reserve President Mary Daly mentioned in a Bloomberg TV interview on Monday that "the time is upon us" to begin reducing interest rates, likely starting with a quarter-percentage point cut.

According to the CME FedWatch Tool, markets are fully anticipating at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting.

Attention now turns toward the speech from Atlantic Fed President Raphael Bostic and the US AI giant - Nvidia's earnings report for a fresh impact on risk sentiment and eventually on the safe-haven US Dollar.

Daily Digest Market Movers: Japanese Yen loses ground after BoJ commentary

Japan’s Finance Minister Shunichi Suzuki stated on Tuesday that foreign exchange rates are influenced by a variety of factors, including monetary policies, interest rate differentials, geopolitical risks, and market sentiment. Suzuki added that it is difficult to predict how these factors will impact FX rates.
US Durable Goods Orders surged by 9.9% month-over-month in July, rebounding from a 6.9% decline in June. This increase significantly outpaced the expected 4.0% rise, marking the largest gain since May 2020.
Bloomberg reported on Friday that Philadelphia Fed President Patrick Harker emphasized the need for the US central bank to lower interest rates gradually. Meanwhile, Reuters reported that Chicago Fed President Austan Goolsbee noted that monetary policy is currently at its most restrictive, with the Fed now focusing on achieving its employment mandate.
Bank of Japan (BoJ) Governor Kazuo Ueda addressed the Japanese parliament on Friday, stating that he is “not considering selling long-term Japanese government bonds (JGBs) as a tool for adjusting interest rates.” He noted that any reduction in JGB purchases would only account for about 7-8% of the balance sheet, which is a relatively small decrease. Ueda added that if the economy aligns with their projections, there could be a phase where they might adjust interest rates slightly further.
Japan’s National Consumer Price Index increased by 2.8% year-on-year in July, maintaining this rate for the third consecutive month and remaining at its highest level since February. Additionally, the National CPI excluding Fresh Food rose by 2.7%, the highest reading since February, aligning with expectations.
The US Composite PMI edged down to 54.1 in August, a four-month low, from 54.3 in July, but remained above market expectations of 53.5. This indicates continued expansion in US business activity, marking 19 consecutive months of growth.
FOMC Minutes for July’s policy meeting indicated that most Fed officials agreed last month that they would likely cut their benchmark interest rate at the upcoming meeting in September as long as inflation continued to cool.

Technical Analysis: USD/JPY stays strongly bid near 144.50

USD/JPY trades well above 144.00 on Wednesday. Analysis of the daily chart shows that the pair is testing the downtrend line, suggesting a weakening bearish bias. However, the 14-day Relative Strength Index (RSI) remains slightly above 30, suggesting a confirmation of a bearish trend.

On the downside, if the USD/JPY pair stays below the downtrend line, it could hover around the seven-month low of 141.69, recorded on August 5. A break below this level might push the pair toward the throwback support at 140.25.

In terms of resistance, the USD/JPY pair may challenge the immediate barrier at the nine-day Exponential Moving Average (EMA) around the 145.23 level. A breakthrough above this level could pave the way for the pair to explore the area near the throwback-turned-resistance at 154.50.

USD/JPY: Daily Chart

Bank of Japan FAQs

What is the Bank of Japan?

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%.

What has been the Bank of Japan’s policy?

The Bank of Japan has embarked in an ultra-loose monetary policy since 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.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.

Is the Bank of Japan’s ultra-loose policy likely to change soon?

A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. With wage inflation becoming a cause of concern, the BoJ looks to move away from ultra loose policy, while trying to avoid slowing the activity too much.

Economic Indicator

Fed's Bostic speech

Raphael W. Bostic is an American economist and academic, who became the 15th President and CEO of the Federal Reserve Bank of Atlanta on June 5, 2017. In 2018, he serves as a voting member of the Federal Open Market Committee.

{{Text}}

News