- The yen rose 1.5% to above 155.5 against the dollar today, its highest level in over a month, as markets reassessed monetary policy expectations for the Bank of Japan and the Federal Reserve, and Japan's willingness to intervene to defend its currency.
- This increase extends the rally that occurred at the end of last week, which lifted the yen from a 38-year low of 162, as Japan is likely to have sold more than $20 billion to support the currency.
In general, the large scale of the suspected intervention in the currency markets by the Japanese Ministry of Finance, along with the weakness of the US dollar due to weak inflation data, has prompted markets to reconsider betting against the yen, and is suspected of sparking a bout of short pressure on the currency, while the momentum of the Japanese yen has slowed economic growth. Moreover, the recovery has prompted some investors not to ignore another round of intervention by Tokyo.
On the monetary policy front, the Bank of Japan is expected to announce plans to scale back bond purchases and possibly raise interest rates again at its next policy meeting later this quarter.
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On the stock exchanges front, Japan’s Nikkei index falls on tech selloff. According to trading platforms, the Nikkei 225 index fell 0.43% to close at 41,098 on Wednesday, reversing gains made earlier in the session, weighed down by losses in Japanese technology stocks that followed a selloff in major U.S. technology names. Clearly, the moves came as investors continue to shift to other sectors that are expected to benefit from U.S. rate cuts, with the Dow Jones and Russell 2000 currently outperforming the S&P 500 and Nasdaq Composite. Meanwhile, the broader TOPIX index rose 0.37% to 2,915 for a second straight day.
On the local market level, A Reuters Tankan survey showed that business sentiment among major manufacturers in Japan improved to its highest level in seven months in July, despite declining confidence among non-manufacturers amid volatile economic expectations. The losses in the technology sector led the decline, with Tokyo Electron (-7.5%), Disco Corp (-4.5%), Lazartec (-5%), Advantest (-2.6%), and Rorzy Corp (-6.1%) among the hardest hit.
USD/JPY Technical analysis and Expectations Today
The USD/JPY pair has been in a selling position following recent intervention by the Bank of Japan, but the pair may find buyers at a key support area visible on the daily chart. Technically, the price has formed higher lows connected by an ascending trend line that has held since March 2023. Thus, the retreat to this support area shows that additional levels indicated by the Fibonacci retracement tool may attract buyers.
Meanwhile The 38.2% Fib level appears to be holding as support around the key psychological level of 156.00, but a larger pullback to the 50% Fibonacci level at 154.00 might be appropriate. Also, the 61.8% Fibonacci retracement aligns with the 200-day simple moving average (SMA) and the trend line at 152.05. Regarding moving averages, the 100 SMA is above the 200 SMA, emphasizing that the stronger path is upward or that the uptrend is likely to gain momentum rather than reverse. In this scenario, USD/JPY could revisit the swing high around 162.00 or at least the area of interest at 160.00.
Simultaneously, the stochastic indicator is heading south, indicating that the correction might continue, but the oscillator is also nearing the oversold region, suggesting exhaustion. Moreover, a turn to the upside would mean that buyers are ready to return. Also, the Relative Strength Index (RSI) is moving downwards and has some ground to cover before reaching the oversold area, so the correction might persist until that happens.
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