The Japanese Yen (JPY) extends its recovery momentum against the US Dollar (USD), capitalizing on the unexpectedly hawkish policy announcements by the Bank of Japan (BoJ).
The BoJ raised the short-term rate target by 15 basis points (bps) from the range of 0%-0.1% to 0.15%-0.25%. Additionally, the bank set out a plan to taper Japanese government bonds (JGB) buying to ¥3 trillion per month as of the first quarter of 2026.
BoJ Governor Kazuo Ueda explained the reasons behind the surprise policy move at a press conference. Ueda deemed it appropriate to adjust the degree of easing to sustainably and stably achieve the 2% inflation target. Additionally, he emphasized that they will keep raising interest rates.
Providing extra legs to the Japanese Yen upside, Mitsubishi UFJ Bank announced that it will raise its short-term prime lending rate to 1.625% from 1.475% starting from September 2, aligning with the BoJ’s rate hike.
Meanwhile, the US Dollar (USD) faces challenges ahead of the Federal Reserve’s (Fed) upcoming interest rate decision scheduled for Wednesday. While the central bank is expected to keep rates unchanged in July, there is growing anticipation of a rate cut in September. This speculation is putting pressure on the USD alongside the unrelenting selling in the USD/JPY pair.
Daily Digest Market Movers: Japanese Yen extends gains, eyes turn to the Fed verdict
- Japan’s Chief Cabinet Secretary Yoshimasa Hayashi stated on Tuesday that the Bank of Japan and the government will closely coordinate. Hayashi emphasized that the BoJ will work closely with the government to implement appropriate monetary policies aimed at achieving the inflation target.
- Japan’s Retail Sales rose by 3.7% year-on-year in June, surpassing the forecasted 3.3% gain and reaching the highest level in four months. Meanwhile, on a monthly basis, Retail Sales increased by 0.6%, a slowdown compared to the previous 1.7% rise.
- Japan’s Unemployment Rate was 2.5% in June, slightly lower than market forecasts of 2.6% and the rate observed over the previous four months. This marks the lowest jobless rate since January.
- Atsushi Mimura, Japan’s newly appointed Vice Finance Minister for International Affairs and top foreign exchange official stated in a Bloomberg interview on Monday that “while the recent depreciation of the Yen has both advantages and disadvantages, the demerits are becoming more noticeable.” Mimura mentioned that intervention is among the measures available to counter excessive speculation affecting the currency.
- Japan’s top council has urged the government and the Bank of Japan to be mindful of the weak JPY when formulating policy. The council emphasized that the impact of a weak Yen and rising prices on consumption cannot be simply overlooked.
- Bank of America indicates that strong economic growth in the United States allows the Federal Open Market Committee (FOMC) to “afford to wait” before making any changes. The bank states that the economy “remains on robust footing” and continues to expect the Fed to start cutting rates in December.
Technical Analysis: USD/JPY tests 150.00, fresh four-month lows
The daily chart analysis shows that the pair has pierced through the critical 200-day Simple Moving Average (SMA) at 151.61, as the 150.00 psychological level gets tested.
The 21-day SMA and the 50-day SMA bearish crossover has come into play, sponsoring the rally in the Japanese Yen.
However, the 14-day Relative Strength Index (RSI) has moved deep into the oversold territory, suggesting that a quick pullback could be in the offing.
If that happens, the immediate resistance is seen at the 200-day SMA of 151.61, above which the intraday high of 153.91 will be retested.
Further up, the 100-day SMA at 155.56 could be a tough nut to crack on the road to recovery for the USD/JPY pair.
On the flip side, a daily closing below the 150.00 level could point to a potential for a fresh downtrend. The door will then open for a test of the March low near 146.50.
