Japanese yen remains warm following BoJ meeting minutes

• The Japanese yen is receiving downward pressure as traders expect the BoJ to delay further rate hikes.
• The minutes of the BoJ meeting revealed a consensus among members on the need to remain vigilant on inflation risks.
• Traders await the annualized US Gross Domestic Product for the second quarter due on Thursday.

The Japanese Yen (JPY) remains bearish against the US Dollar (USD) following the Bank of Japan’s (BoJ) minutes from its July policy meeting released on Thursday. JPY faces challenges as traders expect the BoJ to deliberate ahead of further rate hikes.

The minutes of the BoJ’s monetary policy meeting expressed consensus among members on the importance of remaining vigilant on the risks of inflation overshooting targets. Several members indicated that raising rates to 0.25% would be appropriate as a way of adjusting the level of monetary support. A few others suggested that a moderate adjustment of monetary support would also be appropriate.

The US dollar is receiving downward pressure as the chances of further interest rate cuts by the US Federal Reserve (Fed) increase in the upcoming policy meetings. According to CME’s FedWatch tool, markets are pricing in about a 50% chance of a total of 75 basis points to be deducted by the Fed in a range of 4.0-4.25% by the end of this year.

Traders are now focused on the release of annualized US gross domestic product (GDP) for the second quarter (Q2), scheduled for release later in the day. Inflation data from Tokyo will be reviewed on Friday, which could provide further guidance on the economic outlook and potential monetary policy moves by the Bank of Japan.

Daily Digest Market Movers: Japanese Yen Depreciates on Worries Over Delayed BoJ Rate Hikes

• Federal Reserve Governor Adriana Kugler said Wednesday that she “strongly supported” the Fed’s decision to cut interest rates by half a point last week. Kugler also said further rate cuts would be appropriate if inflation continues to fall as expected, according to Bloomberg.
• 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.
• 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. Ueda also noted that Japan’s real interest rate remains deeply negative, which is helping to stimulate the economy and boost prices.
• 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 the U.S. economy is close to normal rates of inflation and unemployment and that the central bank also needs monetary policy to “normalize,” 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 is breaking above the descending channel to near 145.00

USD/JPY is trading around 145.00 on Thursday. Analysis of the daily chart shows that the pair has broken through the descending channel, indicating a potential for a weakening of the bearish bias. Additionally, the 14-day Relative Strength Index (RSI) moved above the 50 level, suggesting a shift in momentum to optimism from bearish sentiment.

On the other hand, the USD/JPY pair may explore the region around its six-week high of 149.40.

In terms of support, USD/JPY may test the immediate upper limit of the descending channel around the 144.00 level, followed by the nine-day exponential moving average (EMA) at the 143.62 level. A return to the descending channel would reinforce the bearish trend and lead the pair to target the 139.58 region, the June 2023 low.

USD/JPY: Daily chart