- For the second consecutive day, the USD/JPY currency pair has attempted to rebound upward to recoup its recent sharp losses, which pushed it towards the 141.68 support level, its lowest since January 2024.
- This decline came after the Japanese yen recently surged strongly against other major currencies, led by its movement against the US dollar.
- The recent upward rebound reached the 147.89 level.
The latest rebound in the dollar yen price came after the Deputy Governor of the Bank of Japan, Shinichi Uchida, said that they will not raise interest rates if the markets are unstable. However, markets expect the Japanese central bank to raise interest rates further with the rise in domestic wages that push inflation higher. On Monday, the yen price rose to its highest levels in seven months, as the recent currency interventions from Tokyo and the hawkish shift in monetary policy by the Bank of Japan prompted a major unwinding of yen trading.
Meanwhile, the move fueled growing recession fears in the US and disappointing tech earnings that sparked a global sell-off in risky assets, prompting bets on an emergency rate cut by the US Federal Reserve. However, market sentiment has since stabilized, with analysts suggesting the recent global sell-off may be overdone.
On another note, affecting investor sentiment, the yield on the benchmark 10-year Japanese government bond fell to around 0.86% on Wednesday after Bank of Japan Deputy Governor Shinichi Uchida said they would not raise interest rates if the market is unstable. However, markets are expecting the central bank to raise rates further as rising domestic wages push up inflation. Moreover, the latest data showed Japan posted its first rise in real wages in 27 months in June as nominal wage growth outpaced inflation.
Financial markets are betting on two more rate hikes in the current fiscal year ending in March 2025, with the next hike expected in December. Earlier this week, the yield on the benchmark 10-year Japanese government bond fell to a four-month low as fears of a recession in the United States and the unwinding of key yen trades prompted a global sell-off in riskier assets, driving demand for safe-haven Japanese bonds. Furthermore, the market has since pared those bets in what analysts have suggested could be an overreaction.
According to stock trading platforms, Nikkei 225 closes up 1.30%. clearly, Japan’s Nikkei 225 index rose 1.19% to close at 35,090. Meanwhile, the broader TOPIX index rose 2.26% to close at 2,489 on Wednesday. As, it is rising for a second straight session after Bank of Japan Deputy Governor Shinichi Uchida said they would not raise interest rates when the market is unstable.
On Monday, the Nikkei suffered its worst session since 1987 amid fears of a recession in the United States and a major sell-off in Japanese yen trading after a hawkish monetary policy shift by the Bank of Japan. The benchmark index rose sharply on Tuesday, recording its best day since October 2008. Financial stocks led the rally, with strong gains from Sumitomo Mitsui (10.5%), Mitsubishi UFJ (8.7%) and Mizuho Financial (8.6%). Other index heavyweights, including Mitsubishi Heavy Industries (10%), SoftBank Group (5.2%) and Hitachi (4.4%), also advanced.
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USD/JPY Technical Analysis and Expectations Today
The bearish turn in USD/JPY is still the strongest and its recent losses based on the daily chart have moved technical indicators towards strong oversold levels. Technically, the best buy of the dollar against the Japanese yen without risk from the support levels of 143.80 and 142.00 respectively. On the other hand, the psychological resistance of 150.00 will remain the most important for the bulls to regain control of the trend. Ultimately, the price of the dollar against the Japanese yen will continue to be affected by the future policies of central banks and investor sentiment towards risk appetite or not.
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