- USD/JPY retreats from a four-day peak, though the downtick lacks bearish conviction.
- Bets for an imminent BoJ rate hike and a softer risk tone underpin the safe-haven JPY.
- Fed rate cut bets weigh on the USD and contribute to the intraday slide of over 50 pips.
- Traders seem reluctant ahead of FOMC Minutes and Fed Chair Powell’s speech this week.
The USD/JPY pair attracts some intraday sellers after struggling to find acceptance above the 148.00 mark earlier this Tuesday and erodes a part of the previous day’s modest gains. The overnight US Dollar (USD) positive move runs out of steam amid the growing acceptance that the Federal Reserve (Fed) will resume its rate-cutting cycle in September and deliver at least two 25 basis points (bps) rate cuts by the end of this year. This marks a significant divergence in comparison to hawkish Bank of Japan (BoJ) expectations, which benefits the lower-yielding Japanese Yen (JPY) and turns out to be another factor exerting downward pressure on he currency pair.
The BoJ revised its inflation forecast at the end of the July meeting and reiterated that it will raise interest rates further if growth and inflation continue to advance in line with its estimates. This keeps the door open for an imminent BoJ rate hike by the end of this year. Apart from this, a slight deterioration in the global risk sentiment – as depicted by a modest pullback in the equity markets – drives some safe-haven flows towards JPY and contributes to the USD/JPY pair’s intraday pullback of around 50 pips. However, the latest optimism over the potential Russia-Ukraine deal to end the protracted war might hold back the JPY bulls from placing aggressive bets.
In the latest development, US President Donald Trump announced on Monday that he had begun preparations for a face-to-face meeting between Russian President Vladimir Putin and Ukrainian President Volodymyr Zelensky. This followed a summit with Zelensky and the European leaders earlier in the day and fueled hopes for an early peace deal to end Europe’s deadliest war in 80 years. Furthermore, the uncertainty over the likely timing of the next interest rate hike by the BoJ could cap the JPY. The USD, on the other hand, might draw support from diminishing odds for a jumbo Fed rate cut in September, which, in turn, should offer support to the USD/JPY pair.
Traders might also opt to wait for more cues about the Fed’s rate-cut path before placing fresh directional bets. Hence, the focus will remain glued to the release of the FOMC meeting Minutes on Wednesday. Adding to this, Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium would play a key role in influencing the near-term USD price dynamics. Furthermore, the global flash PMIs on Thursday should contribute to producing some meaningful trading opportunities around the USD/JPY pair during the latter part of the week. Hence, it will be prudent to wait for strong follow-through selling before positioning for any further depreciating move for spot prices.
USD/JPY 4-hour chart
Technical Outlook
The USD/JPY pair has been oscillating in a range over the past two weeks or so. This could be categorized as a consolidation phase amid neutral technical indicators on the daily chart, making it prudent to wait for an eventual breakout on either side before the next leg of a directional move.
Meanwhile, bulls might wait for sustained strength and acceptance above the 148.00 mark. The USD/JPY pair might then accelerate the momentum towards the 148.55-148.60 region, or the 50% retracement level of the downfall from the monthly high, en route to the 149.00 round-figure mark.
On the flip side, any corrective slide is likely to find decent support near the 147.10-147.00 area. Some follow-through selling could make the USD/JPY pair vulnerable to retest the multi-week low, around the 146.20 zone, touched last Thursday. A further decline below the 146.00 mark might shift the bias in favor of bears.
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