- The Japanese yen rose above 143.50 yen against the US dollar, hitting a three-week high, as hawkish comments from Bank of Japan Governor Kazuo Ueda contrasted with dovish comments from US Federal Reserve Chairman Jerome Powell.
- On Friday, Ueda told parliament that the BOJ could adjust monetary policy if its economic outlook holds, signalling a willingness to raise interest rates again.
Meanwhile, recent economic data indicating strong growth and persistently high inflation has supported this stance. Data showed that Japan's core inflation accelerated for the third consecutive month to 2.7% in July, while the headline inflation rate remained unchanged at 2.8% for the third consecutive month. On the other hand, Powell boosted hopes for a cut in US interest rates in September. In his Jackson Hole speech on Friday, Powell said that the time had come to adjust policy amid growing risks to the Labor market, while expressing confidence that inflation would return to the central bank's 2% target.
On the stock trading front, Japanese stocks fell as the yen strengthened. According to trading, the Nikkei 225 index of Japanese shares fell 0.66% to close at 38,110 points, while the broader TOPIX index fell 0.87% to 2,661 points on Monday, as Japanese stocks retreated from three-week highs as a strong yen weighed on local stocks. The local currency rose as Bank of Japan Governor Kazuo Ueda indicated he was ready to raise interest rates again, while Federal Reserve Chairman Jerome Powell indicated that rate cuts were imminent. Furthermore, a strong yen hurts the earnings outlook for Japanese export-dependent industries and forces investors to unwind profitable interest-bearing positions.
Technology stocks led the decline, with losses from Disco Corp (-1.6%), Tokyo Electron (-2.4%), Advantest (-2.5%), Recruit Holdings (-0.9%) and Mercury (-1.8%). Other major constituents of the index also fell, including Toyota Motor (-3.2%), Mitsubishi UFJ (-1.7%) and Sumitomo Mitsui (-3.3%).
USD/JPY Technical analysis and Expectations Today
Based on the daily chart attached, USD/JPY is still on a downward correction path and bears could take the currency pair towards the 141.50 support level if it first moves below the 142.80 support level. Technically, the USD/JPY may remain on its downward path until markets and investors react to the announcement of the Fed’s preferred US inflation reading at the end of the week. On the other hand, and over the same period of time, there will be no initial upside shift without returning to the psychological resistance area of 150.00 again.
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