The Japanese Yen has seen a slight appreciation as market participants anticipate that the Bank of Japan (BoJ) will maintain its interest rates during an upcoming meeting. The Consumer Price Index (CPI) in Japan witnessed a year-on-year increase of 3.0% in August, marking its highest level since October 2023. In contrast, the US Dollar is under pressure due to growing expectations of additional interest rate cuts by the Federal Reserve throughout 2024.
On Friday, following the release of CPI data, the Japanese Yen (JPY) traded lower against the US Dollar (USD). Focus has now shifted toward the BoJ’s policy decision, where it is expected to keep its short-term interest rate target between 0.15% and 0.25%. The reported CPI increase from 2.8% to 3.0% demonstrates rising inflationary pressures, while the Core National CPI, which excludes fresh food, reached a six-month high of 2.8%.
Meanwhile, the outlook for the USD/JPY pair is being influenced by a weakening US Dollar prompted by forecasts for further rate cuts from the Federal Reserve. Recent economic projections suggest a revised median rate for 2024 of 4.375%, down from earlier estimates of 5.125%.
Federal officials have clarified that while they anticipate lowering rates, they do not plan to implement aggressive cuts, with half-percentage point adjustments being considered less likely following recent comments from the Fed Chair. Treasury Secretary Yellen highlighted the importance of the Fed’s recent interest rate reduction as a sign of economic confidence and progress in controlling inflation.
Japan’s trade balance recorded a larger deficit in August, with exports rising but falling short of expectations, while imports increased at a slower pace than projected. The Finance Minister indicated a commitment to monitor foreign exchange fluctuations closely, reinforcing awareness of how these movements affect the economy.
Analysts predict that the BoJ may hold steady in its policy approach this week, with a possibility for the Yen to experience further depreciation below the 140.00 per USD level. Current technical analysis suggests the USD/JPY is positioned within a descending channel, indicating potential for continued bearish momentum with support levels identified at 139.58 and 137.50.
