• The Japanese yen is gaining in value ahead of Thursday’s publication of the American PMI index.
• Japan’s manufacturing PMI rose to 50.5 in May from April’s 49.6, suggesting the first expansion since May 2023.
• The US dollar gained after FOMC minutes cast doubt on the Fed’s willingness to continue cutting interest rates.

The Japanese yen (JPY) is showing a slight upward move after the Bank of Japan (BoJ) announced on Thursday that it had left Japanese government bond (JGB) amounts unchanged from the previous operation. More than a month ago, the BOJ cut the purchase amount for 5-10 years as part of a planned operation.

JPY disapproved of data from Japan’s Purchasing Managers Index (PMI), which showed private sector growth hitting a nine-month high in May as manufacturing activity resumed expansion.

The US dollar (USD) remains robust ahead of Thursday’s US PMI data. However, the dollar appreciated on Wednesday with the release of minutes from the latest policy meeting of the Federal Open Market Committee (FOMC) held on Wednesday.

Federal Reserve (Fed) policymakers have expressed concerns about the ponderous progress of inflation, which has shown more persistence than initially anticipated in early 2024. As a result, the Fed is cautious about further interest rate cuts.

Market overview: The Japanese yen remains tranquil in the face of the US PMI index

• Tensions rise after Lai Ching-te takes office as the novel president of Taiwan. Chinese state media reports indicate that China has deployed numerous fighter jets and conducted simulated attacks in specific areas of the region, including actions by warships.
• Japan’s Manufacturing Purchasing Managers’ Index (PMI), published monthly by Jibun Bank and S&P Global, rose to 50.5 in May from 49.6 in April, beating market expectations of 49.7. This marks the first augment since May 2023. Meanwhile, the services PMI fell to 53.6 from the previous 54.3, still marking the fastest expansion in eight months.
• On Wednesday, Japan’s goods trade balance showed the trade deficit widened to 462.5 billion yen in April, deviating from the previous surplus of 387.0 billion yen. This result exceeded market expectations of a deficit of 339.5 billion yen. The deficit was mainly caused by the recent depreciation of the yen, which led to an augment in the value of imports that outweighed the gains from the augment in exports.
• The yield on Japan’s 10-year government bond exceeded 1% on Wednesday for the first time since May 2013, helped by rising investor expectations that the Bank of Japan will tighten policy further in 2024.
• According to the CME FedWatch Tool, the likelihood of the Federal Reserve cutting interest rates by 25 basis points in September fell slightly to 50.7% from 51.6% the day before.
• Federal Reserve Bank of Boston President Susan Collins spoke Tuesday at an event titled “Central Banking in the Post-Pandemic Financial System.” Collins said progress toward adjusting interest rates will take more time and emphasized that patience is the appropriate Fed policy, according to Reuters.

Technical Analysis: USD/JPY remains above the 156.50 level

On Thursday, the USD/JPY pair is trading around 156.70. A rising wedge on the daily chart indicates a bearish turn as the USD/JPY price moves towards the top of the wedge. However, the 14-day Relative Strength Index (RSI) is still slightly above the 50 level. A further decline could be considered a change in momentum.

The USD/JPY pair may retest the upper boundary of the rising wedge near the psychological barrier at 157.00. A break above this level could push the pair towards the recent high of 160.32.

On the other hand, the lower end of the rising wedge would act as immediate support, followed by the 21-day exponential moving average (EMA) at 155.49. A break below this level could put downward pressure on the USD/JPY pair, potentially pushing it towards the reversal support level at 151.86.

USD/JPY: Daily chart