Japanese Yen depreciates as US Dollar advances following Fed Powell's speech

• The Japanese Yen extends its losses as the BoJ Summary of Opinions indicates no immediate plans for further rate hikes.
• Japan’s Tankan Large Manufacturing Index remained steady at 13 points in Q3, as expected.
• Fed Chair Powell said that upcoming rate changes are likely to be more modest.

The Japanese Yen (JPY) continues to lose ground for the second successive day following the release of the Bank of Japan's (BoJ) Summary of Opinions from September’s Monetary Policy Meeting, along with mixed economic data on Tuesday.

The summary indicates no immediate plans for additional rate hikes, stressing a focus on stability and cautious communication. The BoJ intends to maintain its accommodative stance but remains open to adjustments if economic conditions show significant improvement.

Japan’s Tankan Large Manufacturing Index showed that overall business conditions for large manufacturing companies remained steady at 13 points in the third quarter, in line with expectations. Additionally, Japan's Unemployment Rate fell to 2.5% in August, down from 2.7% in July, which was better than market forecasts of 2.6%.

Additionally, the dovish comments from Japan's upcoming Prime Minister, former Defense Chief Shigeru Ishiba, are putting downward pressure on the JPY and underpinning the USD/JPY pair. Ishiba stated on Sunday that the country's monetary policy should continue to be accommodative, indicating the necessity of maintaining low borrowing costs to support a fragile economic recovery, The Japan Times.

Daily Digest Market Movers: Japanese Yen depreciates due to rising doubts over BoJ’s rate hikes

• The US Dollar (USD) gains ground following the latest remarks from the Federal Reserve (Fed) Chairman Jerome Powell on Monday. Powell said the central bank is not in a hurry and will lower its benchmark rate ‘over time.’ Fed Chair Powell added that the recent 50 basis point interest rate cut should not be seen as an indication of similarly aggressive future actions, noting that upcoming rate changes are likely to be more modest.
• The CME FedWatch Tool indicates that markets are assigning a 61.8% probability to a 25 basis point rate cut by the Federal Reserve in November, while the likelihood of a 50-basis-point dropped to 38.2%, down from 53.3% a day ago.
• Japan's Retail Trade increased by 2.8% year-on-year in August, surpassing market expectations of 2.3% and slightly exceeding the upwardly revised 2.7% rise from the previous month. On a month-over-month basis, seasonally adjusted Retail Trade rose by 0.8%, marking the largest increase in three months, following a 0.2% gain in July.
• Japan's Chief Cabinet Secretary, Yoshimasa Hayashi, refrained from commenting on Monday's daily stock market fluctuations. Hayashi emphasized the importance of closely monitoring the economic and financial situation both domestically and internationally with a sense of urgency. He also noted the need for ongoing collaboration with the Bank of Japan.
• St. Louis Federal Reserve President Alberto Musalem stated on Friday, according to the Financial Times, that the Fed should begin cutting interest rates "gradually" following a larger-than-usual half-point reduction at the September meeting. Musalem acknowledged the possibility of the economy weakening more than anticipated, saying, "If that were the case, then a faster pace of rate reductions might be appropriate."
• The US Core Personal Consumption Expenditures (PCE) Price Index for August increased by 0.1% month-over-month, falling short of market expectations of a 0.2% rise and lower than the previous 0.2% increase. Meanwhile, the Core PCE on a year-over-year basis rose by 2.7%, matching expectations and slightly above the prior reading of 2.6%.
• On Thursday, the BoJ Monetary Policy Meeting Minutes expressed the members’ consensus on the importance of remaining vigilant regarding the risks of inflation exceeding targets. Several members indicated that raising rates to 0.25% would be suitable as a way to adjust the level of monetary support. A few others suggested that a moderate adjustment to monetary support would also be appropriate.

Technical Analysis: USD/JPY moves above 144.00, nine-day EMA

USD/JPY trades around 144.10 on Tuesday. Analysis of the daily chart shows that the pair has re-entered the ascending channel pattern, indicating that the bullish bias remains intact. Additionally, the 14-day Relative Strength Index (RSI) is slightly below the 50 level, and a break above this could further confirm the continuation of the bullish trend.

In terms of resistance, the USD/JPY pair could explore the area around the upper boundary of the ascending channel at 146.50, followed by its five-week high of 147.21 level, which was recorded on September 3.

On the downside, the immediate support appears at the nine-day Exponential Moving Average (EMA) at the 143.51 level, followed by the lower boundary of the ascending channel at the 142.80 level. A break below this level could lead the USD/JPY pair to navigate around the 139.58 region, the lowest point since June 2023.

USD/JPY: Daily Chart