Japanese yen falls as BoJ Ueda signals no urgency to raise interest rates

• The Japanese Yen receives downward pressure as traders assess the BoJ’s policy outlook.
• BoJ Ueda indicated he would assess market and economic conditions before making any policy adjustments, signaling there was no urgency to raise rates.
• The US dollar faces challenges due to rising sentiment around the Fed’s policy outlook.

The Japanese yen (JPY) inched lower against the US dollar (USD) on Wednesday as investors gauged the outlook for the Bank of Japan’s (BoJ) monetary policy. On Tuesday, BoJ Governor Kazuo Ueda indicated the central bank has time to assess market and economic conditions before making any policy adjustments, signaling there is no urgency to raise interest rates again.

BoJ Governor Kazuo Ueda also noted that Japan’s real interest rate remains deeply negative, which is helping to stimulate the economy and boost prices. In addition, Finance Minister Shunichi Suzuki expressed his expectation that the Bank of Japan will take appropriate monetary policy measures while continuing to coordinate closely with the government.

Traders are now focusing on the release of minutes from the BoJ’s monetary policy meeting on Thursday, followed by inflation data from Tokyo on Friday to provide further guidance on the economic outlook and potential monetary policy moves.

USD/JPY came under downward pressure as the US dollar struggled following weaker United States (US) consumer confidence data released on Tuesday, which added to favorable expectations for the Federal Reserve (Fed) for its next decision of monetary policy.

Daily Digest Market Movers: Japanese yen remains weak amid confusion over BoJ policy outlook

• Federal Reserve Governor Michelle Bowman said on Tuesday that key inflation indicators were still “uncomfortably above” the 2 percent target, urging caution as the Fed moves forward with interest rate cuts. Despite this, she expressed her preference for a more conventional approach, arguing for a quarter percentage point reduction.
• The US consumer confidence index fell to 98.7 in September from a revised 105.6 in August. This figure marked the biggest drop since August 2021.
• Jibun Bank Japan’s Composite Purchasing Managers’ Index (PMI) fell to 52.5 in September, down from a final reading of 52.9 in August, which was the highest in 15 months. Despite this decline, it marks the eighth consecutive month of growth in private sector activity this year, driven primarily by the services sector. The services PMI rose to 53.9 in September, up from 53.7 last month.
• The S&P Global US Composite PMI rose at a slower pace in September, registering 54.4 compared to 54.6 in August. The manufacturing PMI unexpectedly fell to 47.0, indicating a contraction, while the services PMI expanded more than expected to 55.4.
• Minneapolis Fed President Neel Kashkari said Monday he believes there should and will be further interest rate cuts in 2024. However, Kashkari expects future cuts to be smaller than the one at the September meeting, according to Reuters.
• Chicago Fed President Austan Goolsbee noted, “A lot more rate cuts are probably needed over the next year, rates have to come down significantly.” Additionally, Atlanta Fed President Raphael Bostic said on Monday that the US economy is close to normal rates of inflation and unemployment, and the central bank also needs monetary policy to “normalise”, according to Reuters.
• On Monday, Japan’s new “top currency diplomat”, Atsushi Mimura, said in an interview with NHK that the yen trades built up in the past were likely to be largely undone. Mimura warned that if such trades increased again, it could lead to increased market volatility. “We are always monitoring the markets to make sure this does not happen,” he added.

Technical analysis: USD/JPY remains near 143.50; aligns with the upper limit of a descending channel

USD/JPY is trading around 143.40 on Wednesday. Analysis of the daily chart shows that the pair is moving in a descending channel, indicating a bearish trend. Additionally, the 14-day Relative Strength Index (RSI) is slightly below the 50 level, confirming that bearish sentiment is in play.

On the downside, USD/JPY is currently testing the nine-day EMA at 143.03. A break below this support could see the pair target the 139.58 region, the June 2023 low.

USD/JPY may test the immediate barrier at the upper limit of the descending channel around the 144.10 level. A break above this resistance could allow USD/JPY to challenge the psychological barrier of 145.00.

USD/JPY: Daily chart