- The yen weakened after Fed Chairman Jerome Powell said the 50 basis point cut was “not a new step.”
- The yen’s downside could be limited due to the hawkish sentiment surrounding the Bank of Japan.
- Federal Reserve policymakers raised their long-term forecast for federal revenue to 2.9% from 2.8%.
The Japanese yen (JPY) fell on Thursday but remained weak against the U.S. dollar (USD) on Thursday.The risk sensitive yen continued to weaken despite the Federal Reserve’s sharp 50 basis point rate cut on Wednesday.
Investors are now focused on the Bank of Japan’s (BOJ) policy decision on Friday, with interest rates expected to remain unchanged and give room for price increases before they happen. Japan’s national consumer price index (CPI) data will also be closely watched as the inflation report provides new information on the Bank of Japan’s future interest rate.
The increase in the USD/JPY exchange rate will be linked to Fed Chairman Jerome Powell’s statements. Powell stated in the press conference following the press conference that the Fed was in no hurry to reduce monetary policy and said that the half-point reduction was “not a new step.”
Federal Reserve policymakers updated their economic forecasts in the third quarter, raising their estimate of average unemployment through the end of 2024 to 4.4% from 4.0% in June. They also raised their long-term forecast for government revenues to 2.9% from 2.8%.
Daily Summary Market Trends: Fed raises long-term interest rates, yen weakens
- The Federal Open Market Committee (FOMC) lowered the federal funds rate to a range of 4.75% to 5.0%, marking the Fed’s first rate cut in over four years.
- Federal Reserve Chair Jerome Powell commented on the aggressive 50 basis point rate cut, saying, “This decision reflects our increased confidence that, with the right adjustments to our policy approach, we can maintain a strong labor market, achieve moderate economic growth, and bring inflation down to a sustainable 2% level.”
- Japan’s Merchandise Trade Balance Total recorded a larger trade deficit of ¥695.30 billion in August, up from ¥628.70 billion the previous month, but well below market expectations of a ¥1,380.0 billion shortfall. Exports increased by 5.6% year-over-year, marking the ninth consecutive month of growth, but fell short of the anticipated 10.0%. Imports rose by just 2.3%, the slowest pace in five months, significantly underperforming the projected 13.4% rise.
- JP Morgan CEO Jamie Dimon stated on Tuesday that whether the Federal Reserve cuts interest rates by 25 or 50 basis points, the impact will be “not earth-shattering.” Dimon emphasized, “They need to do it,” but noted that such moves are relatively minor in the grand scheme of things, as “there’s a real economy” operating beneath the Fed’s rate changes, according to Bloomberg.
- US Retail Sales rose by 0.1% month-over-month in August, following a revised 1.1% increase in July, surpassing expectations of a 0.2% decline and indicating resilient consumer spending. Meanwhile, the Retail Sales Control Group increased by 0.3%, slightly below the previous month’s 0.4% rise.
- Japanese Finance Minister Shunichi Suzuki stated on Tuesday that rapid foreign exchange (FX) fluctuations are undesirable. Suzuki emphasized that officials will closely monitor how FX movements affect the Japanese economy and people’s livelihoods. The government will continue to assess the impact of a stronger Japanese Yen and respond accordingly, according to Reuters.
- Commerzbank FX analyst Volkmar Baur anticipated that the Bank of Japan will remain on the sidelines this week. Baur noted that the Federal Reserve’s actions are likely to have a greater impact on the USD/JPY pair, suggesting that the JPY could have a strong chance of falling below 140.00 per USD even without a rate hike from the BoJ.
- On Friday, Fitch Ratings’ latest report on the Bank of Japan’s policy outlook suggests that the BoJ might raise rates to 0.5% by the end of 2024, 0.75% in 2025, and 1.0% by the end of 2026.
Indicators: USD/JPY up to 143.00; Next problem is 21-day EMA
USD/JPY was trading around 143.00 on Thursday. Daily analysis shows the pair rallying in one step, supporting the negative sentiment. However, the 14-day relative strength index (RSI) has risen to 50 and the price has moved above the 9-day exponential moving average (EMA), hinting at a potential correction.
On the upside, USD/JPY may initially face resistance at the 21-day moving average at 143.73, followed by resistance at the upper boundary of the decline near 145.00.
In terms of support, the USD/JPY pair is likely to find immediate support at 139.58, the lowest level since June 2023, followed by one of the lower lows near 137.75.
USD/JPY: Daily Chart
