The Japanese Yen advances as recent data boosts sentiment around the BoJ

• The Japanese yen appreciates on Monday’s positive economic data.
• Japan’s manufacturing PMI read 49.8 for August, up from 49.5 previously.
• The latest US Personal Consumption Expenditure Index data diminishes the chances of an aggressive Fed rate cut in September.

The Japanese Yen (JPY) remains steady against the US Dollar (USD) after the release of July US Personal Consumer Expenditure (PCE) data, which led traders to reduce expectations of an aggressive rate cut interest rates at the Federal Reserve in September.

According to the CME FedWatch tool, markets fully anticipate a rate cut of at least 25 basis points (bps) by the Fed at its September meeting. Traders may now focus on upcoming US employment figures, including non-farm payrolls (NFP) for August, to gain more insight into the potential size and pace of Fed rate cuts.

On Monday, Japanese companies reported a 7.4 percent increase in capital spending for the second quarter. In addition, the country’s manufacturing PMI for August was revised upward to 49.8 from 49.5, indicating a stabilizing trend. On Friday, an uptick in inflation in Tokyo strengthened the Bank of Japan’s (BoJ) monetary policy stance, boosting the JPY and limiting gains in the USD/JPY pair.

Daily Digest Market Movers: Japanese yen appreciates on hawkish BoJ

• The US Bureau of Economic Analysis reported on Friday that the Personal Consumption Expenditure (PCE) Price Index rose 2.5% year-on-year in July, matching the previous reading of 2.5% but below the 2. 6% Meanwhile, core PCE, which excludes volatile food and energy prices, rose 2.6% year-on-year in July, in line with the previous figure of 2.6% but slightly below the consensus forecast of 2, 7%
• Tokyo’s consumer price index (CPI) rose to 2.6 percent year-on-year in August from 2.2 percent in July. Core CPI also rose to 1.6% YoY in August, compared to the previous 1.5%. In addition, Japan’s unemployment rate unexpectedly rose to 2.7 percent in July, up from both the market estimate and June’s 2.5 percent, marking the highest unemployment rate since August 2023.
• Atlanta Federal Reserve President Raphael Bostic, a prominent FOMC hawk, indicated last week that it might be “time to move” on rate cuts because of further declines in inflation and a higher-than-expected unemployment rate. FXStreet’s FedTracker, which rates the tone of Fed officials’ speeches on a scale of 0 to 10 using a custom AI model, rated Kashkari’s words as neutral with a score of 5.6.
• US Gross Domestic Product (GDP) grew at an annualized rate of 3.0% in the second quarter, beating both the forecast and the previous growth rate of 2.8%. In addition, initial jobless claims showed that the number of people filing for unemployment benefits fell to 231,000 in the week ended Aug. 23, down from 233,000 previously and slightly below the 232,000 expected.
• Japan’s Finance Minister Shunichi Suzuki said last week that foreign exchange rates are influenced by a variety of factors, including monetary policies, interest rate differentials, geopolitical risks and market sentiment. Suzuki added that it is difficult to predict how these factors will affect exchange rates.

Technical Analysis: USD/JPY is holding around 146.00

USD/JPY is trading around 146.00 for the month. Daily chart analysis shows that the pair is located above the downtrend line, suggesting a bearish downtrend. However, the 14-day Relative Strength Index (RSI) remains below 50, indicating that the bearish trend is still in place.

In terms of support, USD/JPY could first test the nine-day EMA around 145.53, followed by the downtrend line near 144.00. If the pair breaks below this level, it could head towards the seven-month low of 141.69 recorded on August 5, and then find support around 140.25.

On the upside, USD/JPY could approach the psychological level of 150.00. A break above this level could lead the pair to navigate the area around the 154.50 level, which has turned from support to resistance.

USD/JPY: Daily chart