• 2024-10-16 03:24 PM

The Japanese Yen (JPY) remains subdued against the US Dollar (USD) following the Bank of Japan’s (BoJ) minutes from its July policy meeting released on Thursday. The JPY faces challenges as traders expect the BoJ to ponder before further rate hikes.

The BoJ Monetary Policy Meeting Minutes expressed the members’ consensus on the importance of remaining vigilant regarding the risks of inflation exceeding targets. Several members indicated that raising rates to 0.25% would be suitable as a way to adjust the level of monetary support. A few others suggested that a moderate adjustment to monetary support would also be appropriate.

The US Dollar receives downward pressure from rising odds of further interest rate cuts by the US Federal Reserve (Fed) in upcoming policy meetings. According to the CME FedWatch Tool, markets are pricing in around a 50% chance of totaling 75 basis points to be deducted by the Fed to a range of 4.0-4.25% by the end of this year.

Traders are now focused on the release of the final US Gross Domestic Product (GDP) Annualized for the second quarter (Q2) scheduled to be released later in the day. Tokyo’s inflation data will be eyed on Friday, which may provide further guidance on the economic outlook and potential monetary policy moves by the Bank of Japan.

Daily Digest Market Movers: Japanese Yen depreciates due to concerns over BoJ delaying rate hikes

• Federal Reserve Governor Adriana Kugler said on Wednesday that she “strongly supported” the Fed’s decision to cut the interest rates by a half point last week. Kugler further stated that it will be appropriate to make additional rate cuts if inflation continues to ease as expected, per Bloomberg.
• Federal Reserve Governor Michelle Bowman stated on Tuesday that key inflation indicators are still "uncomfortably above" the 2% target, urging caution as the Fed moves forward with interest rate cuts. Despite this, she expressed a preference for a more conventional approach, advocating for a quarter percentage point reduction.
• US Consumer Confidence Index fell to 98.7 in September from a revised 105.6 in August. This figure registered the biggest decline since August 2021.
• On Tuesday, BoJ Governor Kazuo Ueda indicated that the central bank has time to evaluate market and economic conditions before making any policy adjustments, signaling that there is no urgency to raise interest rates again. Ueda also noted that Japan's real interest rate remains deeply negative, which is helping to stimulate the economy and drive up prices.
• Minneapolis Fed President Neel Kashkari said on Monday that he believes there should be and will be additional interest rate cuts in 2024. However, Kashkari expects future cuts to be smaller than the one from the September meeting, per Reuters.
• Chicago Fed President Austan Goolsbee noted, “Many more rate cuts are likely needed over the next year, rates need to come down significantly.” Additionally, Atlanta Fed President Raphael Bostic said that the US economy is close to normal rates of inflation and unemployment and the central bank needs monetary policy to "normalize" as well, per Reuters.
• On Monday, Japan's new "top currency diplomat," Atsushi Mimura, stated in an interview with NHK that the Yen carry trades accumulated in the past have likely been mostly unwound. Mimura cautioned that if such trades were to increase again, it could lead to heightened market volatility. "We are always monitoring the markets to ensure that does not happen," he added.

Technical Analysis: USD/JPY breaks above the descending channel to near 145.00

USD/JPY trades around 145.00 on Thursday. Analysis of the daily chart shows that the pair has breached above the descending channel, indicating a potential for a weakening of bearish bias. Additionally, the 14-day Relative Strength Index (RSI) has moved above the 50 level, suggesting a momentum shift to bullish from bearish sentiment.

On the upside, the USD/JPY pair may explore the region around its six-week high of 149.40.

In terms of support, the USD/JPY pair may test the immediate upper boundary of the descending channel, around the 144.00 level, followed by the nine-day Exponential Moving Average (EMA) at the level of 143.62. A return to the descending channel would reinforce the bearish bias and lead the pair to target the 139.58 region, the lowest point since June 2023.