The Japanese Yen Appreciates Amidst US Dollar Tepidity
- US Labor Data Release Impact: Traders are cautious ahead of the US labor data release on Friday, causing the Japanese Yen to appreciate.
- Monetary Policy Changes Crucial: Economy Minister Akazawa emphasizes the importance of timing in any monetary policy changes to combat deflation in Japan.
- Government’s Economic Package: Chief Cabinet Secretary Hayashi announces the creation of a comprehensive economic package and plans for a supplementary budget post lower house election.
The Japanese Yen (JPY) experiences a slight retracement following statements from Japan’s ministers on Friday. Economy Minister Ryosei Akazawa highlights the priority of overcoming deflation in Japan, aligning with Prime Minister Shigeru Ishiba and the Bank of Japan (BoJ) on maintaining the 2% inflation target.
Akazawa stresses the importance of timing in any monetary policy changes, ensuring alignment with Japan’s goal of exiting deflation. Additionally, Chief Cabinet Secretary Hayashi reveals plans for a comprehensive economic package and a supplementary budget post lower house election.
Despite these developments, the downside for the USD/JPY pair is limited as the Japanese Yen faces challenges due to diminishing prospects of further rate hikes by the Bank of Japan. PM Ishiba’s comments on interest rates support this notion, indicating no immediate need for further hikes.
Daily Digest Market Movers: USD Strength Challenges Dovish Sentiment Surrounding BoJ
- US Economic Data Impact: Strong US ISM Services PMI and ADP Employment Change reports bolster the US Dollar against dovish Fed expectations.
- Fed Rate Cut Probabilities: CME FedWatch Tool suggests a 67.4% chance of a 25 basis point rate cut in November, with a reduced likelihood of a 50-basis-point cut.
- Fed’s Stance on Interest Rates: Federal Reserve Bank of Chicago President Goolsbee advocates for significant interest rate cuts over the next year to maintain a low unemployment rate.
- Economic Indicators: US ISM Services PMI exceeds forecasts, while inflation indicators show a rise in Services Prices Paid Index.
Market sentiment reflects expectations of limited rate hikes by the Bank of Japan, with futures indicating a conservative outlook on rate adjustments. BoJ board member Noguchi emphasizes the need for patience in maintaining loose monetary conditions.
Additionally, the ADP US Employment Change report surpasses expectations, indicating job market resilience and a rise in annual pay. The BoJ’s Summary of Opinions from September’s meeting highlights the central bank’s accommodative stance amidst economic improvements.
Technical Analysis: USD/JPY Eyes Ascending Channel Pattern
USD/JPY hovers near 146.50, showing a bullish bias with potential for further upside. The pair faces resistance near 147.21, with a breakout targeting the seven-week high at 149.40. Support levels lie at the nine-day EMA and the lower boundary of the ascending channel.
USD/JPY: Daily Chart
Bank of Japan FAQs
- BoJ’s Monetary Policy: The BoJ implements monetary policy to ensure price stability, aiming for around 2% inflation.
- Policy Measures: BoJ’s ultra-loose policy includes QQE, negative interest rates, and yield control on government bonds.
- Effect on Yen Value: BoJ’s stimulus weakened the Yen against other currencies, with a reversal in 2024 as policy shifted.
- Inflation Impact: Rising inflation in Japan, fueled by wage growth, led to an increase in the Yen’s value.