• The Japanese yen is gaining on an influx of safe-haven currencies amid tensions in the Middle East.
• Japan’s parliament will hold a special session to discuss last month’s BOJ interest rate hike.
• Negative US producer price data raised the possibility of a deeper interest rate cut by the Federal Reserve in September.

The Japanese yen (JPY) continued its gains against the U.S. dollar (USD) on Wednesday. The USD/JPY pair faces challenges amid rising expectations that the Bank of Japan (BoJ) will raise interest rates again in 2024. Japan’s parliament is set to hold a special session on August 23 to discuss the Bank of Japan’s (BoJ) decision to raise interest rates last month. BoJ Governor Kazuo Ueda is expected to attend the session, according to government sources cited by Reuters.

Safe-haven flows may have helped support the yen amid rising geopolitical tensions in the Middle East. The BBC reported Tuesday that the United States had sent a guided-missile submarine to the Middle East.

The US dollar fell on lower-than-expected Producer Price Index (PPI) data from the United States (US) released on Tuesday. This boosted bets on interest rate cuts by the US Federal Reserve (Fed). Investors are likely to watch the US CPI inflation report on Wednesday, which could provide some clues on the path of the Federal Reserve (Fed) interest rate cuts.

Daily Market Update: Japanese Yen Gains on Rising Chances of BoJ Raising Interest Rates Again

• Japanese Prime Minister Fumio Kishida announced at a news conference Wednesday that he will not seek re-election as leader of the Liberal Democratic Party (LDP) in September. Kishida stressed the need to combat Japan’s deflation-prone economy by promoting wage growth and investment and achieving the goal of increasing Japan’s gross domestic product to 600 trillion yen.
• Rabobank senior currency strategist Jane Foley notes that a series of US data releases this week, along with the Jackson Hole event next week, should provide the market with a clearer picture of potential reactions from US policymakers. However, their main expectation is for the Fed to cut rates by 25 basis points in September and possibly cut them again before the end of the year.
• The U.S. Producer Price Index (PPI) rose 2.2% year over year in July from 2.7% in June, falling below market expectations of 2.3%. Meanwhile, the PPI rose 0.1% month over month after rising 0.2% in June. The core PPI rose 2.4% year over year in July, from the previous reading of 3.0%. The index fell below estimates of 2.7%. The core PPI was unchanged.
• Atlanta Fed President Raphael Bostic said Tuesday that recent economic data had increased his confidence that the Fed could meet its 2% inflation target. However, Bostic indicated that more evidence was needed before he would support a rate cut, according to Reuters.
• On Sunday, Federal Reserve Governor Michelle Bowman said she still sees upside risks to inflation and continued strength in the labor market. Bowman suggested the Federal Reserve may not be prepared to cut interest rates at its next meeting in September, according to Bloomberg.
• The Bank of Japan’s summary of views from its July 30-31 monetary policy meeting indicated that several members see economic activity and prices evolving in line with the BoJ’s expectations. They are seeking a neutral rate of “at least around 1%” as their medium-term target.
• The minutes of the Bank of Japan’s June meeting show that some members expressed concerns about rising import prices due to the recent decline in the jpy, which could pose a risk of higher inflation. One member stressed that cost-push inflation could exacerbate core inflation if it leads to higher inflation expectations and wage increases.

Technical Analysis: USD/JPY is hovering around 147.00 with an immediate barrier at the nine-day EMA

USD/JPY is trading around 146.80 on Wednesday. Daily chart analysis shows that the pair is staying below the nine-day exponential moving average (EMA), suggesting a bearish trend in the compact term. Furthermore, the 14-day relative strength index (RSI) is placed at 30, suggesting a correction potential.

In terms of support, the USD/JPY pair could test the seven-month low at 141.69 from August 5 and then the secondary support level at 140.25.

On the downside, the pair could face immediate resistance at the 9-day EMA near 147.45. A break above this level could reduce bearish momentum and allow the pair to approach the 50-day EMA at 153.40, with a possible test of the resistance level at 154.50, where the previous support turned into resistance.

USD/JPY: Daily Chart