- The Japanese Yen weakens as the US Dollar strengthens in response to increased Treasury yields.
- Japanese Chief Cabinet Secretary Yoshimasa Hayashi has shown a willingness to make use of every possible option when it comes to foreign exchange matters.
- According to Goolsbee, the Federal Reserve believes that the US economy is making progress towards reaching a 2% inflation target.
The Japanese Yen (JPY) reduces its gains as the US Dollar (USD) strengthens, supported by enhanced Treasury yields. Nevertheless, the JPY’s unpredictability is expected to continue due to speculation of intervention by Japanese authorities in response to disappointing US Consumer Price Index (CPI) data. Traders eagerly anticipate the release of the Michigan Consumer Sentiment Index and US Producer Price Index (PPI) on Friday, as these reports are expected to provide valuable insights into the state of the US economy.
According to data published by the Bank of Japan (BoJ) on Friday, Japanese authorities may have spent around JPY3.37 trillion to JPY3.57 trillion on July 11 in an attempt to control the swift decline of the domestic currency, as reported by Reuters.
Japanese Chief Cabinet Secretary Yoshimasa Hayashi expressed his preparedness to utilize every possible approach when it comes to foreign exchange. Hayashi pointed out that the Bank of Japan (BoJ) would be responsible for determining the details of monetary policy. According to a Reuters report on Friday, it is anticipated that the BoJ will take necessary actions to consistently and effectively reach the 2% price objective.
There is a possibility that the Bank of Japan (BoJ) might consider increasing interest rates during its upcoming July meeting. This anticipation strengthened the JPY, leading to a decrease in the USD/JPY pair.
There Are Oscillations in the Japanese Yen in Response to Potential Intervention Threats
- The Japanese government usually publishes its economic growth projections twice a year, in January and July. According to two government sources, Reuters reported that the upcoming forecast, anticipated next week, is expected to adjust growth expectations for the fiscal year ending March 2025 to approximately 1.0%, which is lower than the current forecast of 1.3%.
- During a recent statement, Japanese Finance Minister Shunichi Suzuki highlighted the negative consequences of swift foreign exchange (FX) fluctuations. Suzuki chose not to provide any comments on FX intervention and politely declined to address media reports concerning Japan’s FX rate checks, as reported by Reuters.
- According to Austan Goolsbee, President of the Federal Reserve Bank of Chicago, the US economy is making progress towards reaching a 2% inflation rate. According to Reuters, Goolsbee expressed his perspective by saying, “In my opinion, this is the representation of the journey towards achieving a 2% outcome.”
- In June, the US Consumer Price Index (CPI) experienced a slight decrease of 0.1% compared to the previous month. This represents the lowest level the CPI has reached in more than three years. In June, the headline CPI rose by 3.0% MoM, which is slightly lower than the 3.3% increase observed in May and falls below the market’s expectation of 3.1%.
- In June, the core CPI, which does not include the unpredictable prices of food and energy, increased by 3.3% compared to the previous year. This is slightly lower than May’s increase of 3.4% and aligns with the expected rate of inflation. Meanwhile, the core Consumer Price Index (CPI) saw a slight uptick of 0.1% on a monthly basis, falling slightly short of both the anticipated and previous reading of 0.2%.
- Peter Boockvar, the CFO of Bleakley Financial Group in the US, stated that the depreciation of the Yen will prompt the Bank of Japan to take action sooner rather than later, according to Reuters.
- According to undisclosed insiders, Reuters revealed on Wednesday that the Bank of Japan is expected to revise down its economic growth forecast for this year. Additionally, during its meeting scheduled for this month, the bank is anticipated to project inflation to remain close to its target of 2% in the upcoming years.
- On Wednesday, Jerome Powell, the Chairman of the Federal Reserve, emphasized the critical importance of closely monitoring the worsening labor market. In addition, Powell conveyed optimism about the declining trajectory of inflation after his comments on Tuesday underscored the need for more data to bolster confidence in the inflation forecast.
- According to a recent Bloomberg report, the Bank of Japan will hold three face-to-face meetings with banks, securities firms, and financial institutions in the coming days to evaluate a viable rate for reducing its acquisitions of Japanese Government Bonds.
USD/JPY Bounces Back Towards 159.50
On Friday, the USD/JPY was hovering around 159.30. Based on the daily chart analysis, there was a noticeable shift in the bullish sentiment as it broke through the lower boundary of an ascending channel pattern. In addition, the 14-day Relative Strength Index (RSI) was just under the 50 mark, suggesting a decrease in the pair’s price momentum.
The USD/JPY pair could encounter some initial support around the psychological threshold of 109.00. If the price drops below this level, it could strengthen the negative sentiment among traders, possibly leading to a return to the low point seen in June around 104.55.
Looking ahead, there is a level of resistance near the 21-day Exponential Moving Average (EMA) at 109.82 and another one near the lower boundary of the ascending channel around 109.95. A potential rebound back into the upward channel could boost confidence for the USD/JPY pair, with a possible aim towards the upper limit of the channel near the 113.20 mark.