The Japanese yen gains ground as the government funds energy subsidies

• The Japanese yen rises as the government will allocate 989 billion yen to fund energy subsidies.
• The JPY faced challenges as weak Japanese manufacturing data fueled speculation that the BoJ could delay further rate hikes.
• The US dollar is receiving support from improving Treasury yields.

The Japanese yen (JPY) ended its four-day losing streak, moving higher against the US dollar (USD) on Tuesday. However, the JPY faced headwinds as weak Japanese manufacturing data fueled speculation that the Bank of Japan (BoJ) may delay further interest rate hikes.

Japan will allocate 989 billion yen to fund energy subsidies in response to rising energy costs and resulting cost-of-living pressures. This government intervention could contribute to inflation. The Bank of Japan’s (BoJ) monetary policy stance was further strengthened by a recent rise in inflation in Tokyo. Meanwhile, Japanese companies reported a sharp increase in capital spending for the second quarter.

USD/JPY’s downside could be limited as the US dollar strengthens amid improving Treasury yields. Traders will focus on upcoming US employment data, particularly August non-farm payrolls (NFP), for more information on the potential timing and extent of Fed interest rate cuts.

Daily Digest Market Movers: Japanese yen higher on BoJ calls

• 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 Bank 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 Bostic’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 Tests 21-Day EMA Resistance Near 147.00

USD/JPY is trading around 146.70 on Tuesday. Daily chart analysis shows that the nine-day exponential moving average (EMA) is lower than the 21-day EMA, indicating a downtrend in the market. Additionally, 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 exponential moving average (EMA) at around 145.91. If the pair breaks below this level, it could move towards the seven-month low of 141.69, recorded on August 5, and then find the next support level around 140.25.

On the other hand, the USD/JPY pair may test the immediate barrier at the 21-day EMA at 146.97. A break above this level could help the pair approach the psychological level of 150.00, followed by the 154.50 level, which has moved from support to resistance.

USD/JPY: Daily chart