Japanese yen falls on BoJ Opinion Summary, economic data

• Japanese yen extends losses as BoJ Opinion Summary indicates no immediate plans for further rate hike.
• Japan’s Tankan Large Manufacturing index was flat at 13 points in Q3, as expected.
• Fed Chairman Powell said future rate changes are likely to be more modest.

The Japanese yen (JPY) continues to lose ground for the second day in a row following the release of the Bank of Japan’s (BoJ) Summary of Opinions from its September monetary policy meeting, along with mixed economic data on Tuesday.

The summary indicates there are no immediate plans for further rate hikes, emphasizing a focus on stability and cautious communication. The BoJ intends to maintain its accommodative stance, but remains open to adjustments if economic conditions show a significant improvement.

Japan’s Tankan Large Manufacturing index showed overall business conditions for large manufacturing companies held steady at 13 points in the third quarter, in line with expectations. Additionally, Japan’s unemployment rate fell to 2.5 percent in August, down from 2.7 percent in July, which was better than market forecasts of 2.6 percent.

Additionally, dovish comments from Japan’s incoming prime minister, former defense chief Shigeru Ishiba, put downward pressure on the JPY and support the USD/JPY pair. Ishiba said on Sunday that the country’s monetary policy should remain accommodative, pointing to the need to keep borrowing costs low to support a fragile economic recovery, The Japan Times.

Daily Digest Market Movers: Japanese Yen Depreciates on Growing Doubts Over BoJ Rate Hikes

• The US Dollar (USD) is gaining ground following the latest statements by Federal Reserve (Fed) Chairman Jerome Powell on Monday. Powell said the central bank was in no rush and would cut its key rate “over time.” Fed Chairman Powell added that the recent 50 basis point interest rate cut should not be seen as an indication of similarly aggressive actions to come, noting that future interest rate changes are likely to be more modest.
• The CME FedWatch tool indicates that markets assign a 61.8 percent probability of a 25 basis point rate cut by the Federal Reserve in November, while the probability of a 50 basis point rate cut fell to 38.2 %, down from 53.3% a day ago.
• Japan’s retail trade rose 2.8 percent from a year ago in August, beating market expectations of 2.3 percent and slightly beating the upwardly revised 2.7 percent increase from the previous month. On a month-over-month basis, seasonally adjusted retail trade rose 0.8 percent, marking the biggest increase in three months, after a 0.2 percent rise in July.
• Japan’s Chief Cabinet Secretary Yoshimasa Hayashi refrained from commenting on Monday’s daily stock market swings. Hayashi stressed the importance of closely monitoring the economic and financial situation both domestically and internationally with a sense of urgency. He also noted the need for continued collaboration with the Bank of Japan.
• The President of the Federal Reserve in St. Louis Alberto Musalem said on Friday, according to the Financial Times, that the Fed should start cutting interest rates “gradually” after a half-point cut larger than usual at its September meeting. Musalem acknowledged the possibility that the economy could weaken more than anticipated, saying, “If that were the case, then a faster pace of rate cuts might be appropriate.”
• The US Personal Consumer Expenditure (PCE) price index for August rose 0.1% month-on-month, below market expectations for a 0.2% increase and less than the previous increase of 0 .2%. Meanwhile, Core PCE on a year-over-year basis rose 2.7%, in line with expectations and slightly above the previous reading of 2.6%.
• On Thursday, 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.

Technical Analysis: USD/JPY is moving above 144.00, nine-day EMA

USD/JPY is trading around 144.10 on Tuesday. Analysis of the daily chart shows that the pair has re-entered the ascending channel pattern, indicating that the uptrend remains intact. Furthermore, the 14-day Relative Strength Index (RSI) is slightly below the 50 level, and a break above it could further confirm the continuation of the bullish trend.

In terms of resistance, the USD/JPY pair could explore the area around the upper boundary of the ascending channel at 146.50, followed by its five-week high of 147.21, which was recorded on September 3.

On the downside, immediate support appears at the nine-day EMA at 143.51, followed by the lower limit of the ascending channel at 142.80. A break below this level could see USD/JPY hover around the 139.58 region, the June 2023 low.

USD/JPY: Daily chart