The USD/JPY currency pair is experiencing a downturn for the second consecutive day, edging closer to a one-month low. This ongoing decline is primarily influenced by contrasting monetary policy expectations from the Bank of Japan (BoJ) and the Federal Reserve (Fed). Market participants are exercising caution, holding back on significant trades as they await the crucial US Consumer Price Index (CPI) report.
The USD/JPY has found some slight support around the 142.00 level, recovering a few pips in the latest trading session. Currently, the pair is hovering near the 142.30 level, which is still in proximity to the one-month low hit last week. This pullback is largely attributed to market reactions to interest rate outlooks from both central banks. As the BoJ signals its intention to potentially raise interest rates in accordance with favorable economic forecasts through fiscal year 2025, the Yen is benefiting from increased investor interest.
In contrast, the market has largely priced in a 25 basis points interest rate cut by the Fed for its forthcoming policy meeting scheduled for September 17 – 18. This anticipation undermines the US Dollar’s recent gains, which had been noted over the past few days. Furthermore, the prevailing cautious sentiment among investors enhances the Yen’s appeal as a safe-haven asset, further exerting downward pressure on the USD/JPY pair.
Given the current economic environment, bearish sentiment appears to dominate, suggesting that further declines may be on the horizon for USD/JPY . However, many traders are likely to hold out for the upcoming US CPI report, which is expected to significantly impact the Fed’s rate-cut trajectory. This key economic data is poised to influence market movements and provide new direction for the USD/JPY currency pair in the near term.
