Japanese Yen holds gains as US Dollar remains subdued ahead of Fed Chair Powell's speech

The Japanese Yen (JPY) strengthens against the US Dollar (USD) following the release of the National Consumer Price Index (CPI) inflation data and a speech by Bank of Japan (BoJ) Governor Kazuo Ueda in Parliament on Friday. Ueda stated that "the BoJ raised rates in July as the economy and inflation moved largely in line with forecasts."

BoJ Governor Ueda also indicated that there would be no change in the stance on adjusting monetary easing if the economy and inflation continue to align with forecasts. Ueda noted that recent BoJ policy decisions have been appropriate and warned that outlining the future policy path could lead to unnecessary speculation.

Read more about BoJ Ueda’s speech: Central bank raised rates in July as economy, inflation moved mostly in line with forecast

The USD/JPY pair depreciates as the US Dollar receives downward pressure from lower Treasury yields. However, the Greenback gained ground following the mixed S&P Global Purchasing Managers Index (PMI) data released on Thursday.

Furthermore, the US Federal Reserve (Fed) Chair Jerome Powell is set to speak at the Jackson Hole Symposium later on Friday. Powell may deliver a statement about the possibility of interest rate cuts in the United States (US), which is highly anticipated by market participants.

Daily Digest Market Movers: Japanese Yen advances after the BoJ Governor Ueda’s speech

• Bank of Japan (BoJ) Governor Kazuo Ueda addressed the Japanese parliament on Friday, stating that he is “not considering selling long-term Japanese government bonds (JGBs) as a tool for adjusting interest rates.” He noted that any reduction in JGB purchases would only account for about 7-8% of the balance sheet, which is a relatively small decrease. Ueda added that if the economy aligns with their projections, there could be a phase where they might adjust interest rates slightly further.
• Japan’s National Consumer Price Index increased by 2.8% year-on-year in July, maintaining this rate for the third consecutive month and remaining at its highest level since February. Additionally, the National CPI excluding Fresh Food rose by 2.7%, the highest reading since February, aligning with expectations.
• The US Composite PMI edged down to 54.1 in August, a four-month low, from 54.3 in July, but remained above market expectations of 53.5. This indicates continued expansion in US business activity, marking 19 consecutive months of growth.
• The S&P Global US Services PMI increased to 55.2 in August 2024, from 55.0 in July, defying expectations of a drop to 54.0. Meanwhile, the Manufacturing PMI declined to 48.0 in August from 49.6 the previous month, falling short of market expectations of 49.6 and signaling the second consecutive contraction in US factory activity at the sharpest rate this year.
• On Thursday, Federal Reserve Bank of Boston President Susan Collins expressed confidence that the US central bank can reduce inflation without causing a recession and indicated her support for beginning interest rate cuts next month. In an interview with Reuters at Jackson Hole, Collins stated, "I think there's a clear path to achieving our goals without an unnecessary downturn, and with a labor market that remains healthy."
• Kansas City Fed President Jeff Schmid mentioned in an interview with broadcaster CNBC at Jackson Hole, that he is closely examining the factors behind the rise in the unemployment rate and will rely on data to determine whether to support a rate reduction next month.
• FOMC Minutes for July’s policy meeting indicated that most Fed officials agreed last month that they would likely cut their benchmark interest rate at the upcoming meeting in September as long as inflation continued to cool.
• Japan's Merchandise Trade Balance fell into a deficit of ¥621.84 billion in July, reversing the surplus of ¥224.0 billion reported in June and missing market estimates of a ¥330.7 billion shortfall. Japan's imports surged by 16.6% year-on-year in July, reaching a 19-month high of ¥10,241.01 billion, significantly up from the 3.2% rise in June. Meanwhile, exports increased by 10.3% YoY to a seven-month high of ¥9,619.17 billion, falling short of market forecasts of 11.4%.

Technical Analysis: USD/JPY falls toward 145.50 around the downtrend line

USD/JPY trades around 145.60 on Friday. Analysis of the daily chart shows that the pair is positioned above a downtrend line, suggesting a weakening of a bearish bias. However, the 14-day Relative Strength Index (RSI) remains just above 30, indicating that the bearish trend may still be in play.

For support levels, the USD/JPY pair tests the downtrend line at the 145.50 level. A break below this level could reinforce the bearish bias and push the pair to navigate the region around the seven-month low of 141.69, which was recorded on August 5. A further drop could drive the pair toward the throwback support level at 140.25.

On the upside, the USD/JPY pair could encounter immediate resistance around the nine-day Exponential Moving Average (EMA) at the 146.46 level. A breakthrough above the nine-day EMA could support the pair to test the resistance level at 154.50, which has transitioned from previous support to current resistance.

USD/JPY: Daily Chart