Japanese Yen sticks to negative bias against a resilient USD amid BoJ uncertainty

• The Japanese Yen drifts lower for the second straight day amid the BoJ rate hike uncertainty.
• The JPY bulls seem unimpressed by slightly higher-than-expected inflation data from Japan.
• The USD bulls retain control ahead of Fed Chair Powell’s speech and support the USD/JPY pair.

The Japanese Yen (JPY) slides to a three-week low against a broadly firmer US Dollar (USD) during the Asian session on Friday. Despite signs that the underlying inflation in Japan remained sticky, the uncertainty over the likely timing of the next interest rate hike by the Bank of Japan (BoJ) turns out to be a key factor undermining the JPY for the second straight day. The USD, on the other hand, climbs to its highest level since August 6 amid reduced bets for a more aggressive policy easing by the Federal Reserve (Fed) and lifts the USD/JPY pair further beyond mid-147.00s.

Investors, however, seem convinced that the BoJ will stick to its policy normalization path amid expectations that wage growth may boost private consumption and fuel demand-driven inflation. This marks a significant divergence in comparison to the growing acceptance that the US central bank will resume its rate-cutting cycle in September, which, in turn, could offer some support to the lower-yielding JPY. The USD bulls might also opt to wait for Fed Chair Jerome Powell’s speech before placing aggressive bets. This might further contribute to capping the USD/JPY pair.

Japanese Yen continues losing ground as inflation data fails to impress bulls

• Japan’s Statistics Bureau reported this Friday that the National Consumer Price Index (CPI) cooled to the 3.1% YoY rate in July from 3.1% in the previous month. Further details revealed that the core gauge, which strips out costs for fresh food, eased from 3.3% in June to 3.1%, marking its lowest level since November 2024.
• The latter, however, was slightly higher than consensus estimates for a reading of 3%. Moreover, the core CPI, which strips out prices of both fresh food and energy and is closely monitored by the Bank of Japan, rose 3.4% in July from a year earlier. This, in turn, keeps hopes alive for further policy normalization by the BoJ.
• Investors, however, remain uncertain about the likely timing of the next BoJ rate hike, which, in turn, fails to assist the Japanese Yen (JPY) in attracting any meaningful buyers during the Asian session on Friday. Nevertheless, the BoJ policy outlook still marks a significant divergence in comparison to the Federal Reserve.
• Market participants pared bets for a more aggressive policy easing by the US central bank amid signs of a gain of momentum in price pressures. That said, traders are pricing in a greater chance that the Fed will resume its rate-cutting cycle in September and lower borrowing costs twice by the end of this year.
• The bets were lifted by Thursday’s US Jobless Claims data, showing that the number of Americans filing new applications for unemployment relief rose by the most in about three months. Moreover, US citizens collecting jobless benefits in the prior week climbed to the highest level in nearly four years.
• The data indicated that the recent labor market softness continued into August. Moreover, the Philly Fed Manufacturing Index tumbled to -0.3 in August, from 15.9 the prior month, renewing concerns about slowing US economic growth. This backs the view that the Fed would lower rates at its next meeting.
• This, along with nervousness ahead of Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium, holds back the US Dollar bulls from placing aggressive bets. Powell’s comments will be looked for cues about the Fed’s rate-cut path, which should provide a fresh impetus to the USD and the USD/JPY pair.

USD/JPY constructive technical setup backs the case for a move beyond 149.00

From a technical perspective, the overnight breakout through the 148.00 mark, or the top boundary of a three-week-old trading range, was seen as a key trigger for the USD/JPY bulls. The subsequent move higher and positive oscillators on the daily chart suggest that the path of least resistance for spot prices remains to the upside. Hence, some follow-through strength towards testing the very important 200-day Simple Moving Average (SMA), currently pegged just above the 149.00 round figure, looks like a distinct possibility. Some follow-through buying should allow the pair to make a fresh attempt towards reclaiming the 150.00 psychological mark.

On the flip side, any corrective pullback could attract fresh buyers and find decent support near the 148.00 mark. This is closely followed by the 147.80 horizontal support, below which the USD/JPY pair could slide further towards the 147.30 area before eventually dropping to the 147.00 round figure. A convincing break below the latter would negate the positive outlook and shift the near-term bias in favor of bearish traders.