Japanese Yen holds gains as US Dollar remains tepid amid dovish Fed

• The Japanese Yen appreciates due to a hawkish sentiment surrounding the BoJ.
• Japan’s Finance Minister Shunichi Suzuki will continue to monitor market developments closely.
• The US Dollar receives downward pressure due to heightened odds of a 25-basis point rate cut in September.

The Japanese Yen (JPY) recovers its recent losses against the US Dollar (USD) on Friday. Traders are closely evaluating Japan's monetary policy outlook, as central bank officials have indicated a readiness to raise rates further, although they have become more cautious due to increased market volatility.

Japan’s Finance Minister Shunichi Suzuki emphasized on Thursday that monetary policy decisions fall under the purview of the Bank of Japan, while they continue to monitor market developments closely, as reported by Reuters.

The US Dollar faces challenges amid increasing expectations that the Federal Reserve (Fed) may implement a rate cut in September. Traders evaluate mixed signals from the US economy, trying to determine whether it will experience a soft landing or slip into a recession. The CME FedWatch tool indicates that markets are now fully anticipating a 25-basis point interest rate cut by the Fed in September.

Daily Digest Market Movers: Japanese Yen receives support as Fed may adopt a dovish stance

• A Julius Baer analyst believes there is no need for the Bank of Japan to significantly raise interest rates beyond current levels. Once market conditions stabilize, the approximately 500-basis point interest rate differential between the JPY and USD is expected to become the main factor. The analyst does not foresee the Yen appreciating further.
• Bloomberg reported that JP Morgan Asset Management (JPAM) believes the Bank of Japan is unlikely to raise interest rates in the near term. According to JPAM, the BoJ may only consider further rate hikes if the Federal Reserve cuts rates and the US economy stabilizes. They anticipate that any additional tightening by the BoJ is more likely to occur in 2025, provided the global economic environment remains stable.
• On Thursday, Kansas City Fed President Jeffrey Schmid stated that reducing monetary policy could be "appropriate" if inflation remains low. Schmid noted that the current Fed policy is "not that restrictive" and that while the Fed is close to its 2% inflation goal, it has not yet fully achieved it, per Reuters.
• US Initial Jobless Claims dropped to 233,000 for the week ending August 2, coming in under the market expectation of 240,000. This decline follows an upwardly revised figure of 250,000 for the previous week, which was the highest in a year.
• The Bank of Japan’s Summary of Opinions from the Monetary Policy Meeting on July 30 and 31 showed that several members believe economic activity and prices are progressing as anticipated by the BoJ. The members are targeting a neutral rate of "at least around 1%" as a medium-term goal.
• On Wednesday, BoJ Deputy Governor Shinichi Uchida also noted that BoJ's interest rate strategy will adapt if market volatility alters economic forecasts, risk assessments, or projections. Given recent market volatility, he emphasized the need for careful monitoring of the economic and price impacts of their policies, stating, “We must maintain the current degree of monetary easing for the time being.”
• The minutes from the Bank of Japan's June meeting showed that some members expressed concerns about rising import prices due to the recent decline in the JPY, which could pose an upside risk to inflation. One member noted that cost-push inflation might intensify underlying inflation if it results in higher inflation expectations and wage increases.

Technical Analysis: USD/JPY hovers around 147.50

USD/JPY trades around 147.40 on Friday. The daily chart analysis shows that the pair has breached above the descending channel, suggesting a weakening of a bearish bias. Additionally, the 14-day Relative Strength Index (RSI) is currently at the 30 level. A move toward the 50 level could signal a potential improvement in momentum for the pair.

For support levels, the USD/JPY pair might test the upper boundary around the 146.75 level. A break below this level could place downward pressure on the pair, potentially guiding it toward a throwback support at 140.25, and further to the lower boundary of the descending channel near 139.00.

In terms of resistance, the USD/JPY pair could test the immediate barrier at the nine-day Exponential Moving Average (EMA) around the 148.13 level. A breakout above this level could diminish bearish momentum and allow the pair to approach the "throwback support turned resistance" at 154.50.

USD/JPY: Daily Chart