30/08/24

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The Japanese Yen has appreciated against the US Dollar as rising inflation in Tokyo enhances the Bank of Japan’s (BoJ) hawkish policy outlook. The Consumer Price Index (CPI) in Tokyo climbed to 2.6% year-on-year in August, up from 2.2% in July. This increase in inflation strengthens the BoJ’s posture, supporting the Yen and exerting downward pressure on the USD/JPY exchange rate.

In addition to the CPI rise, the core CPI also saw a modest increase to 1.6% year-on-year in August, compared to 1.5% in the prior month. However, the unemployment rate in Japan unexpectedly rose to 2.7% in July, up from 2.5% in June, which is the highest rate observed since August 2023. This mix of economic indicators presents a complex picture for the Yen and the Japanese economy.

Despite the Yen’s strength, the US Dollar remains resilient, bolstered by stronger-than-expected economic results released Thursday. Anticipation surrounds the upcoming US Personal Consumption Expenditure (PCE) Price Index data, as investors seek insights into the trajectory of US interest rates, particularly with the Federal Reserve’s expected deliberations on possible rate cuts.

Current market sentiments indicate a consensus for at least a 25 basis point rate cut during the Fed’s September meeting. Federal Reserve officials have suggested that due to slowing inflation and rising unemployment rates, it may be prudent to consider adjustments to interest rates, yet they are waiting for additional confirmation from forthcoming data before making any decisions.

US economic indicators reveal a robust growth in Gross Domestic Product (GDP), which expanded at an annualized rate of 3.0% in the second quarter, surpassing previous expectations. Moreover, initial claims for unemployment benefits fell slightly, indicating stronger labor market conditions. The core PCE measure showed an increase of 2.8%, signaling ongoing inflationary pressures despite a slight deceleration from earlier growth rates.

In remarks regarding foreign exchange rate influences, Japan’s Finance Minister highlighted that various factors, including monetary policies and market sentiment, play a substantial role. Bank of Japan Governor Kazuo Ueda addressed parliament, clarifying that selling long-term Japanese government bonds is not currently under consideration as a mechanism for adjusting interest rates.

From a technical perspective, the USD/JPY pair is trading around 144.80. It remains below the 145.00 level, with signs of a weakening bearish trend. A critical support level is identified at 144.50, while resistance may emerge around the nine-day Exponential Moving Average at approximately 145.15. Further fluctuations may see the pair testing seven-month lows or potential resistance areas based on market movements in the coming days.