There is a clear contrast between the future policy of the American Federal Reserve Bank and the Bank of Japan, which poses an important factor for the bulls to further control the direction of the USD/JPY currency pair. The gains of the trend have reached the week as it moved to the highest resistance level of 147.86 for the currency pair in ten months and closed the week's trading stable around those gains.
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The direction of the Japanese yen did not change even after Japanese officials warned of a weak yen several times, including Japanese Finance Minister Shunichi Suzuki on Friday. His comments follow Bank of Japan board member Junko Nakagawa's statements last Thursday, during which he said that the Central Bank of Japan will coordinate closely with the government in monitoring foreign exchange rates and their impact on the economy.
The timing of the comments is interesting as it comes ahead of the G20 leaders' summit and the Bank for International Settlements central bank governors' meeting in Switzerland this week, the likely venues for currency policy discussions with banks outside Japan. Generally the conditions may be favorable for the Bank of Japan, not the government, to address the weakness of the yen. Core inflation is historically high and the yen is weak. While second-quarter gross domestic product was adjusted on Friday, Cabinet Office figures show overall demand in the economy has started to outstrip supply.
Among the concerns that preoccupy Bank of Japan Governor Kazuo Ueda is the recent slowdown in the growth of the money supply. But monetary conditions in Japan are easy enough to add a dose of tightening.
Other factors affecting the dollar/yen currency pair.
Federal Reserve officials, monitoring the blackout period ahead of the policy meeting scheduled for September 19-20, will absorb another dose of key US inflation data. As the government will issue next Wednesday the consumer price index for the month of August, followed the next day by a measure of producer prices. The core US consumer price index, which excludes food and energy, is expected to show a monthly increase of 0.2% for the third month in a row. Compared to August of last year, this key measure of core inflation is likely to have risen by 4.3%, the slowest annual advance since September 2021.
Such publications would be consistent with expectations that policymakers at the Federal Reserve Bank will keep US interest rates unchanged at their next meeting. While core inflation is easing, a report this week is also expected to show that the overall consumer price index accelerated from the previous month as gasoline prices rose. In addition to the price data, US retail sales figures are expected to indicate a decline in consumer demand in August after recording strong progress in recent months. Other US economic reports include industrial production for August and consumer confidence for September.
Technical analysis of the dollar-yen pair:
- The price of the USD/JPY currency pair rose now to trade at a few levels above the 100-hour moving average.
- As a result, USD/JPY appears to be on the verge of breaking overbought RSI levels on the 14-hour window.
- In the near term and according to the performance on the hourly chart, it seems that the USD/JPY currency pair is trading within the formation of an ascending channel.
- The MACD also seems to be supporting the strong uptrend after completing the bullish crossover.
Therefore, the bulls will look to ride the current series of gains towards 148.18 or higher to the resistance 148.58. The bearish speculators will target possible pullbacks at around 147.43 or below at the 147.05 support.
In the long term and according to the performance on the daily chart, it also seems that the USD/JPY currency pair is trading in a bullish channel. However, the daily MACD seems to be indicating a loss of momentum, which could lead to a pullback. Therefore, the bearish speculators will target potential downside profits at around 146.15 or lower at the 144.55 support. On the other hand, the bulls will look to pounce on the rebounds at around 149.20 or higher at the 150.80 resistance.
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