The Japanese Yen continues to hover near a two-week low against the US Dollar, even amid expectations of a more aggressive stance from the Bank of Japan
The Japanese Yen (JPY) is trading near its two-week low against the US Dollar (USD) in the Asian session on Tuesday, hovering around 159.50. The USD/JPY pair faces pressure, despite market confidence in a potential interest rate hike by the Bank of Japan (BoJ) during the September meeting.Yen outlook steadies as MUFG signals potential BoJ hike
MUFG analysts note that market expectations for additional Bank of Japan (BoJ) tightening remain strong. The probability of a 25 basis point hike in the upcoming September meeting is considered high, estimated at around 80%. This anticipation, combined with softer US economic data, is expected to curb renewed Yen selling, despite Japan's disappointing GDP figures.
The latest BoJ Summary of Opinions revealed that several board members support further monetary tightening soon, although interest rates were left unchanged at 1%. One member emphasized the need to accelerate tightening due to rising inflation risks.
Japan's preliminary second-quarter GDP data, however, fell short of expectations, which could challenge strong BoJ hawkish sentiment.
USD/JPY Technical Analysis
In the daily chart, USD/JPY is trading at 159.51, staying below a significant Fibonacci retracement cluster that is limiting its upward movement in the short term. The price remains under the 50.0% retracement at 159.64 and the 61.8% level at 160.67, indicating that attempts to move higher are likely to face challenges as long as these barriers are present.
The Relative Strength Index (14) is at 44.70, below the midline, signaling diminishing bullish momentum and supporting a cautious, mildly bearish outlook as the market consolidates following the recent retreat.
On the upside, the nearest resistance is at the 50.0% Fibonacci retracement at 159.64, followed by the 61.8% level at 160.67. Beyond this, the 78.6% retracement at 162.14 and the cycle high area marked by the 100.0% level at 164.01 represent further barriers. On the downside, initial support is found at the 38.2% retracement at 158.61, ahead of the 23.6% level at 157.33, with more substantial support positioned much lower at an extended Fibonacci projection near -46.01, which functions more as a distant reference than as an immediate downside target.
What's happening: This morning, the Japanese yen rose in value despite underwhelming domestic GDP figures.
What happened: Investor expectations for a US Federal Reserve interest rate hike this year decreased, boosting the Japanese yen for the second consecutive session.
Additionally, the weaker US dollar contributed to the yen's strength as Japan anticipates some important economic reports.
The Japanese yen strengthens even as GDP figures fall short of expectations
What to watch: Investors will keep an eye on the Jackson Hole Economic Policy Symposium between August 27 and 29, for more insights into the Fed’s policy outlook.
Data on balance of trade, inflation rate and composite PMI from Japan will be released later during the week. Japan had posted a trade deficit of ¥406.9 billion in June versus a year-ago surplus of ¥122.3 billion and is expected to record a wider gap of ¥680 in July. Analysts expect Japan’s core consumer price index to accelerate to 1.8% year-over-year in July from the previous month’s 1.6%, while Japan’s S&P Global Composite PMI Business Activity Index is expected to edge higher to 52.8 in August from 52.7 in July.