Japanese Yen advances as BoJ Governor Ueda hints at further rate hikes

• Japanese yen appreciates due to BoJ Governor Ueda’s rousing speech in Parliament.
• The USD/JPY pair is losing ground due to the different policy outlooks between the two central banks.
• The US dollar lost ground following Fed Chairman Powell’s favorable stance at the Jackson Hole Symposium.

The Japanese yen (JPY) continued to strengthen for a second straight day as hawkish remarks from Bank of Japan Governor Kazuo Ueda contrasted with the dovish stance of Federal Reserve Chairman Jerome Powell.

BoJ Governor Ueda told Parliament on Friday that the central bank could raise interest rates further if its economic forecasts are correct. In addition, July’s national consumer price index (CPI) inflation data remained at its highest level since February, reinforcing the BoJ’s dovish stance on its policy outlook.

The US dollar (USD) depreciates as the chances of a September rate cut increase. Fed Chairman Jerome Powell said at the Jackson Hole Symposium: “The time has come for policy to adjust.” Although, Powell did not specify when the rate cuts would begin or their potential size.

Traders anticipate the US central bank could cut rates by at least 25 basis points in September. According to the CME FedWatch tool, markets now fully anticipate a rate cut of at least 25 basis points (bps) by the Federal Reserve at its September meeting.

Daily Digest Market Movers: Japanese yen rises on dovish BoJ Ueda statement

• Bloomberg reported on Friday that Philadelphia Fed President Patrick Harker stressed the need for the US central bank to gradually lower interest rates. Meanwhile, Reuters reported that Chicago Fed President Austan Goolsbee noted that monetary policy is currently at its most restrictive, with the Fed now focusing on meeting its hiring mandate.
• Bank of Japan (BoJ) Governor Kazuo Ueda addressed the Japanese parliament on Friday, saying he “does not consider selling long-term Japanese government bonds (JGBs) as a tool to adjust interest rates.” He noted that any reduction in JGB purchases would only represent about 7-8% of the balance sheet, which is a relatively small drop. Ueda added that if the economy lines up with their projections, there could be a phase where they could adjust interest rates a bit more.
• Japan’s national consumer price index rose 2.8 percent year-on-year in July, maintaining that rate for the third straight month and remaining at its highest level since February. In addition, the national CPI excluding fresh food rose 2.7%, the most since February, in line with expectations.
• The US composite PMI fell 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 minutes of the FOMC’s July policy meeting indicated that most Fed officials agreed last month that they were likely to cut their benchmark interest rate at the next meeting in September as long as inflation continued to cool.

Technical Analysis: USD/JPY is depreciating to near 144.00

USD/JPY is trading around 143.90 on Friday. Analysis of the daily chart shows that the pair is positioned below a downtrend line, suggesting a bearish trend. However, the 14-day Relative Strength Index (RSI) remains slightly above 30, indicating that the bearish trend may continue.

On the downside, USD/JPY may be hovering in the region around the seven-month low of 141.69, which was recorded on August 5. A break below this level could lead the pair to the rebound support level at 140.25.

In terms of resistance, USD/JPY may test the immediate barrier at the downtrend line around the psychological level of 145.00, followed by the nine-day exponential moving average (EMA) at 145.74. A break above the nine-day EMA could help the pair explore the region around the retracement resistance at the 154.50 level.

USD/JPY: Daily chart