The Japanese Yen (JPY) held steady on Wednesday, recovering from early weakness and extending gains for a second consecutive day. A combination of bargain-hunting by traders and growing confidence in the Bank of Japan’s (BoJ) policy shift helped the currency attract fresh demand.
Unlike the US Federal Reserve (Fed), which is widely expected to begin cutting rates before year-end, the BoJ is seen sticking to its slow but steady path toward policy normalization. This divergence has provided a supportive backdrop for the Yen, especially as global markets remain cautious. Even so, Japan’s fragile trade performance and political concerns at home leave room for hesitation about the pace of any BoJ tightening.
On the other side, the US Dollar (USD) continues to benefit from reduced expectations of aggressive Fed rate cuts, extending its winning streak for a third session. With the FOMC Minutes due later in the day and Fed Chair Jerome Powell scheduled to speak at the Jackson Hole Symposium, traders are staying on the sidelines before placing big bets on the USD/JPY pair.
Japan’s Latest Economic Signals
- Machinery Orders Surprise to the Upside: Japan’s core Machinery Orders rose 3% in June, defying forecasts for a 1% decline. The jump came almost entirely from an 8.8% increase in non-manufacturing demand, masking weakness in manufacturing, which slumped 8.1%.
- Exports Extend Decline: Exports fell 2.6% year-on-year in July, the steepest drop in over four years, weighed down by concerns over US tariffs. This marked the third straight monthly contraction.
- Trade Deficit Returns: Imports shrank 7.5% year-on-year, less than expected, leading to a ¥117.5 billion deficit instead of the forecasted surplus. The negative balance renewed pressure on the Yen, though expectations of BoJ tightening capped the downside.
- BoJ vs Fed Outlook: The BoJ recently lifted its inflation forecast and reaffirmed its readiness to raise rates further if inflation and growth remain aligned with projections. In contrast, markets still expect the Fed to cut rates twice by 25 basis points this year, although hotter July US Producer Price Index (PPI) data has tempered calls for a large September cut.
USD/JPY Technical Picture
USD/JPY Forecast: How BoJ-Fed Policy Divergence Shapes Market Moves
- Support Zone: Initial support lies between 147.10 and 147.00. A break below could deepen losses toward last week’s low near 146.20, with further downside possible below 146.00.
- Upside Levels: A sustained break above 148.00 would shift momentum back to the bulls, opening the path to 148.55–148.60 and possibly the 149.00 round number.
Market Outlook
The Yen is finding strength from the BoJ-Fed policy gap and its traditional safe-haven appeal, but domestic trade weakness and resilient USD buying are keeping rallies in check. With traders eyeing the FOMC Minutes and Powell’s speech at Jackson Hole, the USD/JPY pair may remain range-bound until a clearer catalyst emerges.
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