Japanese Yen holds losses, traders remain alert to further interventions

• The Japanese Yen inches lower as the US Dollar rebounds.
• The JPY could limit its downside as traders expect further intervention by Japanese authorities.
• The greenback may limit its upside due to the rising expectations of the Fed reducing rates in September.

The Japanese Yen (JPY) retraces its recent gains on Thursday. However, the JPY had strengthened against the US Dollar (USD) after suspected intervention by Japanese authorities drove the USD/JPY pair to a one-month low of 155.36. Traders remain alert to the possibility of further interventions.

Reuters cited Kyodo News, reporting that Japan's top currency diplomat Masato Kanda said on Wednesday he would have to respond if speculators cause "excessive" moves in the currency market and that there was no limit to how often authorities could intervene.

The US Dollar receives support from a slight improvement in US Treasury yields. However, the greenback may limit its upside due to the high likelihood of a rate-cut decision by the Federal Reserve (Fed) in its September policy meeting.

Fed Governor Christopher Waller said on Wednesday that the US central bank is ‘getting closer’ to an interest rate cut. Meanwhile, Richmond Fed President Thomas Barkin stated that easing in inflation had begun to broaden and he would like to see it continue,” per Reuters.

According to CME Group’s FedWatch Tool, markets now indicate a 93.5% probability of a 25-basis point rate cut at the September Fed meeting, up from 69.7% a week earlier.

Daily Digest Market Movers: Japanese Yen inches lower as US Dollar recovers

• Japan's Merchandise Trade Balance Total for the year ended in June climbed to a surplus of ¥224 billion against the expected deficit of ¥240 billion and ¥-1,220.1 billion prior.
• Japan's YoY Exports in June grew by 5.4%, below the forecast 6.4% and a steeper decline from the previous period's 13.5% upsurge. Meanwhile, Imports growth collapsed to 3.2%, well below the forecast 9.3% compared to the last 9.5%.
• During an interview with Bloomberg News on Tuesday, Donald Trump cautioned Fed Chair Jerome Powell against cutting US interest rates before November’s presidential vote. However, Trump also indicated that if re-elected, he would allow Powell to complete his term if he continued to "do the right thing" at the Federal Reserve.
• Data released on Tuesday showed that the Bank of Japan (BoJ) entered the foreign exchange market on consecutive trading days last Thursday and Friday. The current account balance data from the BoJ, released on Tuesday, indicates an anticipated liquidity drain of approximately ¥2.74 trillion ($17.3 billion) from the financial system on Wednesday due to various government sector transactions, according to Nikkei Asia.
• On Tuesday, Federal Reserve (Fed) Board of Governors member Dr. Adriana Kugler acknowledged that inflationary pressures have eased but emphasized that the Fed still needs additional data to justify a rate cut. Kugler indicated that if upcoming data does not confirm that inflation is moving toward the 2% target, it may be appropriate to maintain current rates for a while longer, per Reuters.
• The US Retail Sales for June stayed mostly in line with expectations. Retail Sales in the United States held steady at $704.3 billion in June, after a 0.3% gain (revised from 0.1%) in May, and are in line with market expectations.
• Fed Chair Jerome Powell mentioned on Monday that the three US inflation readings of this year "add somewhat to confidence" that inflation is on course to meet the Fed’s target sustainably, suggesting that a shift to interest rate cuts may not be far off.

Technical Analysis: USD/JPY holds ground above 156.00

USD/JPY trades around 156.30 on Thursday. The daily chart analysis shows that the pair lies below its 9-day Exponential Moving Average (EMA), suggesting downward momentum in the short term. This signals that it may be prudent to hold off on buying until the trend shows signs of reversal. Additionally, the momentum indicator, the 14-day Relative Strength Index (RSI), is below the 50 level, suggesting a confirmation of a bearish bias.

The USD/JPY pair could find key support around June's low at 154.55. A break below this level could exert pressure on the pair to navigate the region around May’s low at 151.86.

On the upside, immediate resistance is observed around the nine-day Exponential Moving Average (EMA) at 158.27. A breakthrough above this level could lead the USD/JPY pair to revisit the pullback resistance around the psychological level of 162.00.

USD/JPY: Daily Chart