The USD/JPY climbed late on Monday, with the US dollar gaining over 1% against the Japanese Yen, trading at 143.69 after Federal Reserve Chair Jerome Powell made remarks in the news.
Powell stated that inflation for goods and services has broadly returned to pre-pandemic levels, noted a significant decline in the job-finding rate, and said there’s no need to accelerate rate cuts.
Over the weekend, the yen surged sharply after Japan’s Ishiba won the leadership contest of the ruling Liberal Democratic Party in a narrow victory. Ishiba, a former defense minister and a critic of past monetary stimulus, told Reuters that the central bank is “on the right policy track” with its rate hikes so far.
Markets had largely expected a win for hardline nationalist Sanae Takaichi, a vocal opponent of further interest rate hikes, leading to expectations of loose monetary and fiscal policies and a weaker yen in recent days.
The Japanese yen strengthened by 1.88%, trading at 142.12 per dollar after briefly reaching 142.09. This marked the yen’s largest daily percentage gain since August 2. For the week, the dollar is down 1.25% against the yen, poised for its third weekly decline in four.
Additionally, Japan’s jobless rate for August dropped to 2.5% from 2.7% in July, according to government data released on Tuesday. The seasonally adjusted unemployment rate was better than economists’ median forecast of 2.6%. Meanwhile, the jobs-to-applicants ratio for August declined to 1.23 from 1.24 in July, slightly below the forecasted 1.24.
At the same time, the Bank of Japan policymakers discussed the need for caution over near-term interest rate hikes, with some voicing concerns about unstable financial markets and the U.S. economic outlook, according to a summary of their September meeting.
Overseas economic uncertainties have heightened. We should scrutinize overseas and market developments closely for the time being,” one member was quoted as saying. Given the economic and market uncertainties, the BOJ believes it is undesirable to raise rates further at this point, as it might signal a shift toward a full monetary tightening cycle.
At the September meeting, the BOJ kept short-term rates steady at 0.25%, with the governor indicating that they could afford to take their time in assessing the impact of global economic uncertainties, signaling no rush to raise borrowing costs further.
Technical Outlook – U.S. Dollar / Japanese Yen
USDJPY saw a strong recovery from the day’s low of 141.64, trading at 143.87, up by 0.99% on an intraday basis.
Since August 16, the pair has been on a downward trend, consolidating below the key resistance level of 149 and forming a lower low pattern. However, it found strong support around 139.60 and has since recovered to current levels.
In the near future, the pair is expected to stay within its short-term range of 149–141. Any rise towards 147.80–148.80 is likely to face selling pressure, while the pair may hold above the multiple support areas around 141.50–141. Additionally, political and monetary policy uncertainties are likely to drive volatility. Stay tuned for a potential big move in the currency
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