The Japanese Yen is likely to face challenges as the Bank of Japan (BoJ) seems unhurried in its approach to raising interest rates. Recent comments from Finance Minister Shunichi Suzuki suggest an expectation that the BoJ will take necessary monetary policy actions, while remaining in coordination with the government. The Yen held steady against the US Dollar but is under pressure due to growing apprehension about the BoJ’s lack of urgency.
Market participants are increasingly anticipating further interest rate reductions from the US Federal Reserve in 2024, which may subsequently weaken the USD/JPY pair. Current analyses indicate a 50% chance of a 75 basis point cut, potentially lowering the Fed’s rate to a range of 4.0-4.25% by year-end. This expectation could shift investor sentiment and impact the Yen’s value.
In other economic indicators, the Jibun Bank Composite Purchasing Managers Index (PMI) showed a slight decrease to 52.5 in September from August’s 52.9. This marks the eighth consecutive month of growth in the private sector, largely driven by the services sector, which saw its PMI rise to 53.9. Conversely, the S&P Global Composite PMI experienced slower growth at 54.4, with the Manufacturing PMI surprising at a contraction of 47.0, while the Services PMI surpassed expectations, hitting 55.4.
Newly appointed currency diplomat, Atsushi Mimura, highlighted the potential for increased market volatility if Yen carry trades were to reemerge, indicating that most previous trades have been unwound. Consumer price inflation in Japan has also risen to 3.0% year-on-year as of August, with a core CPI of 2.8%, aligning with market predictions.
Lastly, technical indicators for the USD/JPY suggest a bearish sentiment, with the pair trading around 143.70. If it breaks below key support levels, it may test 143.01, possibly falling to 139.58, its lowest point since June 2023. Immediate resistance remains at 144.30, with any breakout here prompting a challenge to the significant psychological barrier of 145.00.
