Japanese Yen Pares Intraday Gains Despite Hawkish BoJ Stance

The Japanese Yen (JPY) has lost momentum against the US Dollar (USD), reversing some intraday gains after the release of the US Personal Consumption Expenditures (PCE) Index data for July. This data dampened expectations for a significant interest rate cut by the Federal Reserve (Fed) in September. The CME FedWatch Tool now shows that markets are fully pricing in at least a 25 basis point rate cut at the Fed’s upcoming meeting, though traders will be closely monitoring upcoming US employment data, including August’s Nonfarm Payrolls (NFP), for further clues on the Fed’s policy trajectory.

On Monday, data showed Japanese companies increased Capital Spending by 7.4% in the second quarter. Additionally, Japan’s Manufacturing PMI for August was revised upwards to 49.8 from an initial estimate of 49.5, suggesting a move towards stabilization in the sector. Recent Tokyo inflation data, which showed an increase, has bolstered the Bank of Japan’s (BoJ) hawkish stance, providing some support to the JPY and limiting gains in the USD/JPY pair.

Daily Market Movers: JPY Declines Despite Hawkish BoJ

The US Bureau of Economic Analysis reported that the headline PCE Price Index rose by 2.5% year-over-year in July, consistent with the previous month’s reading but below the expected 2.6%. The core PCE, excluding food and energy prices, also increased by 2.6% year-over-year, in line with the prior month’s data but slightly under the forecast of 2.7%. Meanwhile, Tokyo’s Consumer Price Index (CPI) climbed to 2.6% year-over-year in August, up from 2.2% in July, and the core CPI rose to 1.6% from 1.5%. However, Japan’s unemployment rate unexpectedly increased to 2.7% in July, the highest since August 2023, from 2.5% in June.

Atlanta Fed President Raphael Bostic, a notable hawk, recently suggested that it might be time for the Fed to consider rate cuts due to cooling inflation and a higher-than-expected unemployment rate. According to FXStreet’s FedTracker, which rates the tone of Fed officials’ speeches on a scale from 0 to 10, Kashkari’s recent remarks were rated as neutral, with a score of 5.6.

In the US, second-quarter GDP growth was reported at an annualized rate of 3.0%, surpassing expectations and the previous rate of 2.8%. Initial Jobless Claims dropped to 231,000 for the week ending August 23, slightly below expectations, signaling a robust labor market.

Japan’s Finance Minister, Shunichi Suzuki, noted that foreign exchange rates are influenced by a variety of factors, including monetary policies, interest rate differentials, geopolitical risks, and overall market sentiment. He emphasized the unpredictability of these factors’ impact on FX rates.

Technical Analysis: USD/JPY Holds Ground Around 146.00

USD/JPY is trading near the 146.00 mark. Technical analysis on the daily chart shows the pair remains above the downtrend line, indicating a reduced bearish outlook. However, the 14-day Relative Strength Index (RSI) is still below 50, suggesting that the bearish trend is not fully out of play.

For support, USD/JPY could test the nine-day Exponential Moving Average (EMA) around 145.53, followed by the downtrend line near 144.00. If it falls below this level, the pair might aim for the seven-month low of 141.69, set on August 5, with further support at 140.25. On the upside, breaking above the psychological level of 150.00 could lead the pair to test resistance around the 154.50 level.