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03/09/24
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Yen Recovers Amid Energy Subsidies; Dollar Weighs with Inflation Concerns
The Japanese Yen has shown signs of recovery, marking an end to its four-day slide against the US Dollar. The Yen gained traction following the announcement that the Japanese government would allocate ¥989 billion to support energy subsidies, amid rising energy costs and increasing cost-of-living pressures. However, the currency faces challenges as weak manufacturing data raises concerns that the Bank of Japan (BoJ) may delay future rate hikes. The need for energy intervention could, paradoxically, contribute to rising inflation, while recent data indicates an uptick in capital spending among Japanese businesses for the second quarter.
Meanwhile, the US Dollar is benefitting from improved Treasury yields, which could limit further declines in the USD/JPY exchange rate. Market participants are now looking ahead to key employment data, particularly the August Nonfarm Payrolls, which could provide insights into potential Federal Reserve rate cuts. Recent reports indicated that the headline Personal Consumption Expenditures (PCE) Price Index rose by 2.5% year-on-year for July, aligning with previous data but just below expectations. In contrast, the core PCE saw a mild increase to 2.6%.
Tokyo’s Consumer Price Index has also shown a rise to 2.6% year-on-year in August, signaling greater inflationary pressures in the capital. The increase in Japan’s unemployment rate to 2.7% in July adds another layer of complexity to the economic landscape, being the highest level observed since August 2023.
Comments from the Federal Reserve indicate a watchful stance on rate adjustments amid cooling inflation and rising joblessness, with some officials suggesting it may be an opportune moment to consider rate cuts.
Technical analysis for the USD/JPY pair indicates it is testing resistance levels around 147.00, with current trading around 146.70. Should the pair fail to break these resistance levels, it could seek support near the nine-day Exponential Moving Average around 145.91, potentially leading to further declines towards earlier lows if momentum shifts continue. Meanwhile, upward movement beyond the current resistance could push the pair back towards the pivotal psychological level of 150.00.
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