The Japanese Yen has shown persistent weakness, extending its decline into a third consecutive session amid thin trading conditions due to a holiday. Market analysts suggest that this trend could be linked to concerns over the Bank of Japan’s (BoJ) reluctance to raise interest rates. During the latest BoJ meeting, the central bank maintained its interest rate target within the 0.15-0.25% range, reinforcing its commitment to adjust monetary easing measures as required to meet economic and inflation goals. Although there are indicators of a moderate recovery in Japan’s economy, signs of underlying vulnerability remain prevalent.
Meanwhile, the US Dollar is experiencing upward momentum driven by recovering Treasury yields. However, it faces potential headwinds as market participants are increasingly factoring in the likelihood of more rate cuts from the US Federal Reserve in 2024. Market data suggests a 50% probability of a 50 basis point reduction in rates to a range of 4.0-4.25% by year-end.
In Japan, Atsushi Mimura, the newly appointed top currency diplomat, pointed out that the unwinding of previous Yen carry trades has likely occurred. He noted that a resurgence of these trades could create increased market volatility and affirmed the government’s vigilant monitoring of the situation.
The economic landscape is further complicated by Japan’s recent consumer price data, which showed the Consumer Price Index rising to 3.0% year-on-year as of August, an increase from 2.8%. Notably, the Core National CPI also recorded a six-month high of 2.8%. Additionally, Japan’s trade statistics reflected a wider merchandise trade deficit of ¥695.30 billion, yet the shortfall was less severe than market expectations.
As for the USD/JPY currency pair, it is trading around 144.40. Technical analysis indicates that a break above its current range could trigger a shift from bearish to bullish sentiment, with key resistance at 144.70. On the downside, levels to watch include the 21-day Exponential Moving Average at 143.76, and any break below the 143.00 level could push the pair toward 139.58, the lowest point since June 2023.
