• The Japanese yen remains stable, likely as a result of intervention by Japanese authorities in the foreign exchange market.
• Japanese Masato Kanda recommended that, if necessary, intervene 24 hours a day.
• The US dollar is gaining as Fed officials continue to delay the 2024 deadline for the first interest rate cut.

The Japanese yen (JPY) is maintaining its position, probably as a result of intervention by Japanese authorities in the foreign exchange market. Japan’s top foreign exchange diplomat, Masato Kanda, said on Monday that he would take appropriate action if there were excessive movements in the currency market. According to Reuters, Kanda warned against the negative economic consequences of such moves and stressed its readiness to intervene around the clock if necessary.

Meanwhile, the US Dollar Index (DXY), which measures the value of the US dollar (USD) against six major currencies, is rising slightly as Federal Reserve (Fed) officials delay the date of their first interest rate cut this year. According to the CME FedWatch Tool, investors are pricing in a nearly 65.9% chance of a Fed rate cut in September, down from 70.2% a week earlier.

Market overview: Japanese yen loses due to hawkish Fed policy

• The BoJ’s summary of its June monetary policy meeting noted that core inflation, as measured by the Consumer Price Index (CPI), is expected to rise gradually. Over the second half of the projection period, it is likely to remain broadly in line with the objective of price stability.
• On Friday, the US PMI Composite Index for June exceeded expectations, rising to 54.6 from May’s reading of 54.5. The rate was the highest since April 2022. The manufacturing PMI rose to a reading of 51.7 from 51.3, beating the forecast of 51.0. Similarly, the Services PMI rose to 55.1 from 54.8 in May, beating the consensus of 53.7.
• Reuters reported that Bank of Japan Vice President Shinichi Uchida said on Friday that the central bank would “adjust the degree of monetary support” if the economy and prices are in line with his forecasts. This signals the bank’s readiness to further escalate interest rates.
• Japan on Friday reaffirmed its commitment to achieving a primary budget surplus by the next fiscal year. According to Reuters, the decision reflects concerns that the exit from an ultra-low interest rate environment could escalate the government’s debt burden.
• Fed Bank of Richmond President Tom Barkin said Thursday that the central bank is well-positioned and has the strength to do the job, but it will learn much more in the next few months, according to a Bloomberg report. Meanwhile, Fed Bank of Minneapolis President Neel Kashkari noted that it would likely take a year or two for inflation to return to 2%.

Technical Analysis: USD/JPY Holds Above 159.50

On Monday, the USD/JPY rate is around 159.70. Daily chart analysis shows a bullish bias, with the pair testing the upper boundary of the ascending channel formation. Moreover, the 14-day Relative Strength Index (RSI) is above the 50 level, suggesting an uptrend.

Crossing the upper threshold of the ascending channel formation will strengthen the bullish sentiment and take the pair closer to the 160.32 level, marked in April as the highest level in over three decades, which constitutes a major resistance.

On the other hand, immediate support comes in the form of the nine-day exponential moving average (EMA) at 158.42. A break below this level could intensify downward pressure on the USD/JPY pair, potentially pushing it towards the lower boundary of the ascending channel near the 155.60 level. A break below this level could put pressure on the pair to test reversal support near the 152.80 level.

USD/JPY: Daily chart