The Japanese yen is holding its ground on increasing chances that the BoJ will raise rates

• The Japanese yen appreciated as cash earnings from labor rose 3.6 percent from a year ago in July.
• BoJ Governing Council member Hajime Takata said the domestic economy was recovering moderately, although some weak signs were seen.
• Rising US Treasury yields provide support for the US dollar.

The Japanese yen (JPY) is holding steady against the US dollar (USD), supported by a second straight month of real wage growth in Japan. In July, Japan’s cash labor income rose 3.6 percent from a year earlier, a slowdown from June’s 4.5 percent rise but the biggest since January 1997, beating market expectations of 3 .1%. This strong performance reinforces speculation that the Bank of Japan (BoJ) could implement another interest rate hike before the end of 2024.

Hajime Takata, a member of the Board of Governors of the Bank of Japan (BoJ), made several comments on the bank’s policy outlook and economic outlook during his speech on Thursday. Japan’s economy is recovering moderately, although there have been some weak signs. Stock and currency markets have seen high volatility, but we still see our inflation target being met.

Read the full article: Hard to debate at this stage how much the BoJ can shrink its balance sheet – BoJ’s Takata

The US dollar is recovering recent losses as US Treasury yields improve. However, the Greenback faced challenges after July’s US JOLTS job offers came in below expectations, signaling a further slowdown in the labor market. Traders now await US ISM PMI services and initial jobless claims scheduled for release on Thursday.

Daily Digest Market Movers: Japanese yen remains solid as real wages rise in July

• San Francisco Federal Reserve President Mary Daly said Wednesday that “the Fed needs to cut its policy rate because inflation is falling and the economy is slowing.” As for the size of the potential rate cut in September, Daly noted, “We don’t know yet.” FXStreet’s FedTracker, which rates the tone of Fed officials’ speeches on a scale of 0 to 10 using a custom AI model, rated Daly’s words as neutral with a score of 3.6.
• Atlanta Federal Reserve President Raphael Bostic said the Fed was in a favorable position, but added that it should not maintain a tight policy stance for too long, according to Reuters. 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 4.6.
• Japan’s Chief Cabinet Secretary Yoshimasa Hayashi said Wednesday that it is “closely monitoring domestic and international market developments with a sense of urgency.” Hayashi stressed the importance of managing fiscal and economic policy in close coordination with the Bank of Japan (BoJ).
• US JOLTS job openings fell to 7.673 million in July, down from 7.910 million in June, marking the lowest level since January 2021 and below market expectations of 8.10 million.
• Jibun Bank Services PMI data on Wednesday. The index was revised to 53.7 in August from an initial estimate of 54.0. While this marks the seventh straight month of expansion in the services sector, the latest figure is unchanged from July.
• The US ISM manufacturing PMI rose to 47.2 in August from 46.8 in July, below market expectations of 47.5. This marks the 21st contraction in US factory activity in the past 22 months.
• On Tuesday, Japan announced plans to allocate 989 billion yen to fund energy subsidies in response to rising energy costs and resulting cost-of-living pressures.
• 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%

Technical analysis: USD/JPY remains below 144.00, support appears around seven-month lows

USD/JPY is trading around 143.80 on Thursday. An analysis of the daily chart shows that the nine-day exponential moving average (EMA) remains below the 21-day EMA, signaling a sustained bearish trend in the market. Additionally, the 14-day Relative Strength Index (RSI) is nearing the 30 level, confirming the ongoing bearish momentum but also suggesting a potential near-term upward correction.

On the downside, support could be found near the seven-month low of 141.69 recorded on August 5. Additional key support appears at 140.25, which is the lowest level since July 2023.

In terms of resistance, the pair may first encounter a barrier at the nine-day EMA around 145.00, followed by the 21-day EMA at 146.32. A break above these EMAs could diminish the bearish sentiment and help the pair move towards the psychological level of 150.00.

USD/JPY: Daily chart