Upward channel resistance may limit the recovery attempt

• USD/JPY reverses an intraday decline in reaction to less shocking remarks from BoJ Governor Ueda.
• Ueda said uncertainties about Japan’s economy and consumer prices remain high.
• Divergent BoJ-Fed policy outlooks should keep any meaningful appreciation moves in check.

The USD/JPY pair saw some intraday sellers on Friday, although it manages to bounce back quickly from the 141.75 area and climb to a new daily high in the early part of the European session on Friday. The Japanese yen (JPY) rose after the Bank of Japan (BoJ), as widely anticipated, decided to leave its main short-term interest rate unchanged at 0.25% in a unanimous vote and remained optimistic about the economy. In fact, the central bank raised its assessment of consumer spending and reiterated that it expects price growth to be in line with target in the second half of the projection period. This comes on top of data showing Japan’s core inflation rose for a fourth straight month and bolsters the case for further BoJ policy tightening.

Japan’s Bureau of Statistics reported today that the core consumer price index (CPI), which excludes volatile fresh food prices, rose at a 2.8 percent rate from last year, or a 10-month high in August, from 2.7% in the previous month. . In addition, headline CPI rose from 2.8% in July to 3% during the reporting month, also hitting a 10-month high. In addition, the core CPI, which excludes both fresh food and energy, rose to 2.0% from 1.9%. The data pointed to broader inflationary pressures in Japan and bolstered bets that the BoJ will raise rates again in 2024. This marks a big divergence from the Federal Reserve’s (Fed) relatively dovish outlook and is drawing some intraday sellers around the USD/ JPY. Friday.

On Wednesday, the US central bank kicked off its policy easing cycle and announced an outsized 50 basis point interest rate cut. In addition, policymakers are forecasting rates to fall another half percentage point by the end of this year. Meanwhile, markets are pricing in a more than 40 percent chance of another Fed rate cut in November, which is keeping U.S. Treasury yields and the U.S. dollar (USD) depressed. However, USD/JPY is seeing a nice recovery during the day in reaction to the not so dovish remarks of BoJ Governor Kazuo Ueda, saying that uncertainties about Japan’s economy and consumer prices remain high. Any significant upside, however, still appears elusive, warranting caution for aggressive traders.

Technical perspectives

Technically, the recent decline along a downsloping channel seen over the past month indicates a well-established short-term downtrend. Furthermore, the oscillators on the daily chart – although recovering a bit – are still in negative territory and suggest that the path of least resistance for the USD/JPY pair is to the downside. Therefore, any further move up could continue to face stiff resistance near the 144.00 threshold. This is closely followed by the upper limit of the trend channel, around the 144.25 region, which, if decisively broken, could nullify the bearish outlook and trigger an aggressive short-covering move. Spot prices could then aim to recover the psychological mark of 145.00.

On the other hand, the 142.60 area now appears to protect the immediate downside ahead of the 142.00 round figure and the daily swing around the 141.75 region. Some further selling has the potential to pull USD/JPY towards the 141.00 mark en route to the 140.55-140.50 support and the psychological 140.00 mark. The downward trajectory could extend further towards challenging the YTD low around the 139.60-139.55 area, which now coincides with trend channel support and should act as a key pivot point. A convincing break below will be seen as a new trigger for bear traders and pave the way for deeper losses.

USD/JPY 4 hour chart