The Japanese Yen (JPY) remains under pressure, failing to attract meaningful buying interest despite slightly higher-than-expected inflation figures.
The persistent uncertainty over the timing of the next Bank of Japan (BoJ) rate hike continues to weigh on the JPY, while a broadly firmer US Dollar (USD) provides support to the USD/JPY currency pair, pushing it above the mid-147.00s during the Asian trading session on Friday. Christine Guillaudat, broker at ProDivia Group, unpacks the important details of this topic.
Yen Vulnerable Amid BoJ Policy Uncertainty
Japan’s National Consumer Price Index (CPI) data released on Friday showed that headline inflation cooled to 3.1% YoY in July, unchanged from June, while the core CPI, which strips out fresh food costs, fell to 3.1% from 3.3%. Although this represents a modest deceleration, the core CPI excluding both fresh food and energy, closely watched by the BoJ, rose 3.4% YoY, slightly above market expectations of 3%.
The data signals that underlying inflation remains sticky, reinforcing the BoJ’s potential path toward policy normalization. However, investors remain cautious about the likely timing of the next BoJ interest rate adjustment, which has kept the JPY under pressure.
The divergence between the BoJ’s cautious stance and the Federal Reserve’s more hawkish outlook continues to favor USD strength against the Yen.
USD Bulls Retain Control Ahead of Powell Speech
The US Dollar (USD) has maintained its positive bias, climbing to levels not seen since early August amid diminishing expectations for aggressive policy easing by the Federal Reserve (Fed). This dynamic has supported USD/JPY, which broke above mid-147.00s as traders recalibrated their positions ahead of Fed Chair Jerome Powell’s upcoming speech at the Jackson Hole Symposium.
Recent US economic data has reinforced a more cautious approach by market participants. Jobless Claims rose by the most in nearly three months, while the number of Americans receiving unemployment benefits reached its highest level in almost four years, indicating softening labor market conditions.
Additionally, the Philadelphia Fed Manufacturing Index fell sharply to -0.3 in August, down from 15.9 in July, signaling slowing US economic growth.
While these data points suggest that the Fed could resume its rate-cutting cycle, traders remain hesitant to place aggressive bets, instead awaiting guidance from Powell. His comments are expected to provide directional cues for the USD and the USD/JPY pair, particularly regarding the timing and magnitude of potential rate cuts.
Technical Outlook: USD/JPY Eyes 149.00 and 200-Day SMA
From a technical analysis perspective, the overnight breakout above 148.00, marking the upper boundary of a three-week trading range, has been a key catalyst for USD/JPY bulls. Daily chart indicators and positive oscillators suggest that the path of least resistance remains to the upside, with potential follow-through buying targeting the 200-day Simple Moving Average (SMA) slightly above 149.00.
A sustained rally could test the 150.00 psychological level, which would be a notable milestone for the USD/JPY pair. Conversely, short-term corrections may find support near 148.00, followed closely by 147.80. A breach below 147.30 could lead to a decline toward the 147.00 round figure, which would challenge the bullish technical bias and provide opportunities for bearish traders to enter the market.
Fundamental Drivers and Market Sentiment
The ongoing BoJ rate hike uncertainty is central to the JPY’s underperformance. Despite slightly stronger CPI data, market participants remain skeptical about imminent BoJ tightening, leaving the Yen vulnerable.
In contrast, the USD benefits from relative resilience, supported by market expectations that the Fed’s next moves may include gradual rate reductions, depending on forthcoming inflation and labor market data.
Investor sentiment ahead of Powell’s Jackson Hole address is cautious, creating short-term consolidation in USD/JPY trading. However, the broader fundamental backdrop favors further upside for the pair, as the USD maintains strength against most major currencies, particularly the JPY, which continues to face structural headwinds in the form of low interest rates and BoJ policy divergence.
Conclusion
In summary, the Japanese Yen remains pressured due to BoJ rate hike uncertainty and sticky underlying inflation, while the US Dollar continues to firm ahead of key Fed commentary. The USD/JPY pair has surpassed mid-147.00s, with the next technical targets likely at 149.00 and the 200-day SMA, and the 150.00 psychological level in sight.
Traders are advised to monitor Powell’s speech, US labor market data, and BoJ policy updates, as these factors will be critical in determining the near-term trajectory of the USD/JPY pair.
