- The Japanese yen has appreciated to over 141 yen against the US dollar, heading towards its highest levels this year amid divergent monetary policies between Japan and the United States.
- In this regard, Bank of Japan board member Junko Nakagawa said the central bank will continue to raise interest rates if inflation moves in line with its expectations.
- Also, she added that the tight Labor market and continued increases in import prices also pose upside risks to inflation. Moreover, she noted that real interest rates remain very negative despite the July interest rate hike.
In contrast, the US Federal Reserve is widely expected to start cutting interest rates this month, with Fed policymakers warning of rising risks to the Labor market. On the economic data front, a private survey showed that manufacturing sentiment in Japan fell to a seven-month low in September amid concerns about weak Chinese demand.
On the stock market platforms front, Japanese stocks declined due to the hawkish statements from the Bank of Japan. The Nikkei 225 index fell 1.49% to close at 35,620 points. Meanwhile, the broader TOPIX index fell 1.78% to close at 2,531 points on Wednesday, continuing the losses incurred in the previous session after hawkish remarks from a Bank of Japan policymaker. Furthermore, Bank of Japan board member Junko Nakagawa said that the central bank will continue to raise interest rates if the economy and inflation move in line with its expectations. As a result, the Japanese yen rose to near its highest levels since the beginning of the year following her comments, putting further downward pressure on domestic equities.
Elsewhere, the yield on the 10-year Japanese government bond fell to around 0.85% even after Bank of Japan board member Junko Nakagawa said the central bank would continue to raise interest rates if inflation moves in line with its expectations. Also, she added that the tight Labor market and continued increases in import prices pose upside risks to inflation. Moreover, she noted that real interest rates remain deeply negative despite the July rate hike.
Overall, markets are betting that the Bank of Japan will raise interest rates again before the end of the year in an attempt to steadily raise borrowing costs. On the data front, a private survey showed that manufacturing sentiment in Japan fell to a seven-month low in September amid concerns about weak Chinese demand.
Today, the annual inflation rate in the United States is likely to slow for the fifth straight month to 2.6% in August 2024, the lowest level since March 2021, from 2.9% in July. Compared to the previous month, the consumer price index is expected to rise 0.2%, the same as in July. Also, gasoline prices are expected to decline, while rents and auto insurance may show signs of slowing. Meanwhile, core US inflation is expected to remain steady at its lowest level in more than three years at 3.2%. The monthly core inflation rate is also expected to remain at 0.2%.
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USD/JPY Technical Analysis and Expectations Today:
According to the performance on the daily chart attached, the USD/JPY is on a strong downward path. Also, we had indicated in the recent technical analysis of the currency pair that the bears are now closer to moving to break the most important support for that period of time, the 141.75 level, and indeed it is now below it. The psychological support of 140.00 may be the next stop, which in turn will move all technical indicators towards strong oversold levels. Technically, the current downward performance may remain until the markets and investors react to the upcoming announcements of both the US Federal Reserve and the Bank of Japan.
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