The Japanese Yen (JPY) continues its downward trend against a recovering US Dollar (USD), marking the second consecutive day of declines. This movement has pushed the USD/JPY pair further beyond the significant psychological level of 147.00 during the Asian trading session. Factors contributing to this drop include disappointing figures from Japan’s Core Machinery Orders, which fell 4.6% month-over-month in July, coupled with a backdrop of political uncertainty that may prompt the Bank of Japan (BoJ) to delay any interest rate hikes.
The weaker machinery orders data, which contrasted sharply with expectations, has added pressure to the Yen as traders shift their focus. The sentiment is also influenced by a generally bullish atmosphere in equity markets, which tends to diminish demand for safe-haven currencies like the JPY.
Despite the Yen’s decline, a strong follow-through is limited due to the prevailing belief that the BoJ will adhere to a path of policy normalization. This anticipation has emerged as a notable contrast to the US Federal Reserve’s (Fed) dovish signal of potential rate cuts. The Fed recently slashed its benchmark interest rate by 25 basis points to a range of 4.00%-4.25%, with further cuts expected by year-end, effectively narrowing the interest rate differential with Japan. This narrowing is likely to mitigate the Yen’s losses to some extent.
Traders are exercising caution in their positions as they await outcomes from a two-day BoJ policy meeting set to commence on Thursday. A decision is expected from the central bank on Friday, although analysts widely anticipate that interest rates will remain unchanged. Market participants will be vigilant for any indications regarding future policy moves.
The BoJ’s current stance, coupled with an improving outlook for domestic growth following a recent US-Japan trade deal, is contributing to speculation about an impending rate hike, despite ongoing geopolitical tensions arising from conflicts such as the Russia-Ukraine war and unrest in the Middle East. These external factors may deter traders from making aggressive bearish bets on the Yen, sustaining its role as a safe-haven asset.
Amid these dynamics, the USD/JPY pair is encountering resistance around the 147.40-147.50 range. Oscillators on the daily charts have yet to confirm any positive signals for the pair, suggesting potential challenges ahead. Should the Yen weaken further, support is anticipated near the 146.20 level, with more critical support at around 146.00. A decisive move below this could accelerate the Yen’s decline towards the psychological 145.00 mark.
In the wider currency markets, the US Dollar is showing strength against most major currencies, with notable gains against the New Zealand Dollar and a slight advance versus the Yen. As traders navigate through various economic data releases, including the upcoming Weekly Initial Jobless Claims and Philly Fed Manufacturing Index, they remain on alert for short-term trading opportunities within this fluctuating landscape.
