The Japanese Yen has experienced a decline for the second consecutive day, primarily driven by the recent release of the Bank of Japan’s (BoJ) Summary of Opinions from its September Monetary Policy Meeting and a mix of economic indicators. The summary highlighted that no immediate rate hikes are planned, emphasizing stability and careful communication. While the BoJ intends to maintain a supportive monetary policy, it remains open to potential adjustments if economic circumstances improve significantly.
In the third quarter, Japan’s Tankan Large Manufacturing Index held steady at 13 points, aligning with expectations. Additionally, the unemployment rate improved to 2.5% in August, down from 2.7% in July, surpassing market predictions of 2.6%. This positive employment data provides some support for the economy, despite ongoing economic challenges.
Comments from Shigeru Ishiba, the former Defense Chief and likely candidate for Japan’s next Prime Minister, are adding pressure on the Yen. Ishiba suggested that the country’s monetary policy should remain accommodative, advocating for low borrowing costs to nurture the economy’s fragile recovery.
Meanwhile, the US Dollar is gaining strength following remarks from Federal Reserve Chairman Jerome Powell, who indicated that changes to interest rates would be gradual. Powell mentioned that the recent 50 basis point cut should not signal a trend towards aggressive rate changes, hinting at more modest adjustments ahead.
Market analysis reveals a 61.8% probability for a 25 basis point rate cut by the Fed in November, with the chances for a larger reduction diminishing. Japan’s retail trade data showed a year-on-year increase of 2.8% in August, exceeding expectations, while month-over-month figures also indicated notable growth.
As of Tuesday, the USD/JPY exchange rate hovers around 144.10. Technical indicators point towards a bullish bias, with potential resistance near 146.50 and a five-week high at 147.21. Immediate support is noted at 143.51, with further levels at 142.80 that, if breached, could bring the currency pair closer to 139.58, the lowest mark since June 2023.
