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Japanese Yen gains against US Dollar as markets brace for a more aggressive BoJ

  • The Japanese Yen strengthens against the US Dollar, pushing USD/JPY down nearly 0.4% on Wednesday.
  • Markets expect a 25-basis-point interest rate hike in Japan in September, while policymakers leave the door open to more aggressive tightening.
  • Investors now await US inflation data to refine expectations for the Federal Reserve’s next policy decision.

USD/JPY declines 0.39% on Wednesday and trades around 153.40 at the time of writing. The Japanese Yen (JPY) benefits from renewed demand as investors increase their bets on further monetary tightening by the Bank of Japan (BoJ).

The BoJ is expected to raise its policy rate by 25 basis points (bps) at its September meeting, taking it from 1% to 1.25%. Such a move would bring Japanese interest rates to their highest level in nearly 31 years and would follow the rate hike delivered in June.

Expectations of further monetary tightening are supported by inflationary risks stemming from higher Oil prices and the weakness of the Japanese Yen. BoJ board member Hajime Takata reinforced these expectations last week by suggesting that the central bank could adopt a more aggressive approach than previously anticipated. Takata indicated that a 25-basis-point increase was not necessarily set in stone and that consecutive rate hikes also remained possible.

In the United States (US), attention turns to upcoming inflation data. The Producer Price Index (PPI) and Consumer Price Index (CPI) are expected to provide fresh clues about the Federal Reserve’s (Fed) monetary policy path ahead of its September meeting.

According to the CME FedWatch Tool, markets currently assign around a 62% chance to a Fed interest rate hike at its September meeting. Upcoming inflation data could therefore play a decisive role in shaping interest rate expectations on both sides of the Pacific and, consequently, the next directional move in USD/JPY.

USD/JPY technical analysis

Chart Analysis USD/JPY

In the one-hour chart, USD/JPY trades at 153.37, holding in a bearish near-term bias as it remains well below the 100-period simple moving average (SMA) at 154.92 and the 200-period SMA at 157.26. The pair is consolidating after recent losses, with price capped by these descending longer-term averages, while the Relative Strength Index (14) near 42 hints that downside pressure persists but is not yet oversold.

On the topside, initial resistance is located at 154.40, ahead of the 100-period SMA at 154.92 and a higher horizontal barrier at 155.29, with the 200-period SMA at 157.26 reinforcing the broader bearish structure above. On the downside, immediate support is seen at 152.89, with a deeper floor at 152.27; a clear break below this zone would open the way to an extension of the downtrend, while recovery attempts are likely to struggle as long as the pair trades under the 100-period SMA.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Author

Ghiles Guezout

Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.

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