- The Japanese Yen attracts some buyers amid the BoJ’s hawkish on-hold interest rate decision.
- The uncertainty over the likely timing and the pace of BoJ rate hikes caps gains for the JPY.
- Fed Chair Powell’s remarks support the USD and USD/JPY ahead of BoJ Ueda’s presser.
The Japanese Yen (JPY) gains strong positive traction in reaction to the Bank of Japan’s (BoJ) decision to keep rates unchanged for the fifth consecutive meeting with a hawkish decision. The outcome reaffirmed market expectations for a 25-basis-point (bps) BoJ rate hike move in October amid signs of economic resilience and provides a goodish boost to the JPY.
The BoJ’s hawkish stance, meanwhile, marks a significant divergence in comparison to the US Federal Reserve’s (Fed) signal of two more rate cuts this year. This contributes to the lower-yielding JPY’s outperformance against a broadly firmer US Dollar (USD) and fails to assist the USD/JPY pair to capitalize on its strong gains registered over the past two days.
Investors, meanwhile, remain concerned that domestic political uncertainty could give BoJ reasons to delay rate hikes further. Moreover, data released earlier today showed that Japan’s core consumer prices rose at the slowest pace in nine months during August. This is holding back the JPY bulls from placing aggressive bets ahead of BoJ Governor Kazuo Ueda’s presser.
Japanese Yen bulls look to regain control after BoJ’s hawkish rate decision
- The Bank of Japan decided to leave the short-term interest rate target unchanged in the range of 0.4%- 0.5% after concluding its two-day monetary policy review meeting this Friday. There were two dissents to the on-hold decision, both wanting a rate hike, which, in turn, provides a modest lift to the Japanese Yen (JPY) during the Asian session.
- Earlier the Ministry of Internal Affairs and Communications reported this Friday that Japan’s consumer prices excluding fresh food rose 2.7% in the year to August. This marks a notable deceleration from a 3.1% increase recorded the previous month and the slowest pace since November 2024.
- Further details of the report revealed that the core Consumer Price Index (CPI), which excludes fresh food, slowed from a 3.1% year-on-year rise seen in July to 2.7%. Moreover, a gauge stripping away both volatile and fresh food and fuel costs rose 3.3% compared to a 3.4% increase in July.
- This comes on top of domestic political uncertainty and economic headwinds stemming from US tariffs, which tempers market expectations for an immediate BoJ rate hike move.
- Investors, however, are still pricing in the possibility of a 25-basis-point BoJ rate hike in October amid signs of economic resilience. Hence, the focus will be on the accompanying policy statement and BoJ Governor Kazuo Ueda’s forward guidance at the post-meeting press conference.
- A hawkish assessment of Federal Reserve Chair Jerome Powell’s comments on Wednesday assists the US Dollar to preserve its strong recovery gains registered over the past two days, from the lowest level since February 2022. This, in turn, keeps the USD/JPY pair close to the weekly high.
- Powell told reporters that risks to inflation are tilted to the upside and the move to lower interest rates was a risk management cut. Powell added that he doesn’t feel the need to move quickly on rates and that the Fed is in a meeting-by-meeting situation regarding the outlook for interest rates.
- Nevertheless, the US central bank is still expected to deliver two more rate cuts in 2025. This marks a significant divergence in comparison to relatively hawkish BoJ expectations, which could support the lower-yielding JPY and keep a lid on any further appreciation for the USD/JPY pair.
USD/JPY bears await sustained break below 147.00 before positioning for deeper losses
The overnight move beyond the 147.50-147.60 horizontal resistance and the 148.00 mark favors the USD/JPY bulls. Moreover, oscillators on the daily chart have just started gaining positive traction and back the case for additional gains. Any subsequent move up, however, is likely to confront stiff resistance near the 200-day Simple Moving Average (SMA), currently pegged near the 148.55-148.60 region. A sustained strength beyond might then allow spot prices to reclaim the 149.00 round figure and test the monthly swing high, around the 149.20 zone.
On the flip side, the 147.60-147.50 area now seems to protect the immediate downside, below which the USD/JPY pair could accelerate the slide towards the 147.00 mark. A convincing break below the latter would expose the 146.20 horizontal support before spot prices extend the downward trajectory towards the 145.50-145.45 region, or the lowest level since July 7, touched earlier this week.
