USD/JPY struggles to recover from the previous day’s losses ahead of the release of the US Consumer Price Index (CPI), treading waters around 146.60 during the Asian session on Tuesday. The pair experienced downward pressure due to the bullish comments from the Bank of Japan (BoJ) in addition to the lackluster performance of the US Dollar (USD).
A three-day winning streak for USD/JPY is broken on Wednesday as it trades lower during the early trading hours of the European session, around 147.40. The pair dropped from a new high set on Tuesday since November 2022. Following a comment by Masato Kanda, Japan’s chief currency ambassador, as reported by Reuters, the pair is under downward pressure.
— M Umar (@MUmar6741490718) September 12, 2023
Kanda issued a warning against the recent sell-off of the Japanese Yen (JPY) and indicated that authorities won’t rule out any options if speculative movements in the currency market continue. This statement has had a bearish impact on the USD/JPY pair.
A private survey published on Tuesday revealed that the growth of business activity in China’s services sector slowed to its lowest level in eight months. This event has sparked worries about the second-largest economy in the world’s deteriorating economic situation, which could affect Japanese exports to the nation.
Furthermore, US Commerce Secretary Gina Raimondo anticipates that there will be no changes to the US tariffs on China, which were imposed during President Donald Trump’s administration until the ongoing review by the US Trade Representative’s (USTR) Office is completed. This resurgence of trade tensions between the US and China could potentially reduce investors’ appetite for riskier assets, which makes it difficult to achieve a significant corrective decline in the pair.
Additionally, remarks made by Bank of Japan (BoJ) policymaker Hajime Takata on Wednesday helped to confirm market expectations for the BoJ’s (BoJ) sustained dedication to an accommodating monetary policy. In light of the significant uncertainties surrounding the economic outlook, Takata stressed the need for the central bank to gradually continue its supportive posture.
— Equity Clock (@EquityClock) September 12, 2023
US Dollar Index (DXY), which measures the value of the US Dollar (USD) against the six other major currencies, hovers around 104.70 at the time of writing. Investors appear to be increasingly accepting the no-interest rate hike by the US Federal Reserve (Fed) during the upcoming September policy meeting. However, the markets are still factoring in the possibility of one more 25 basis points (bps) rate hike by the end of this year.
In addition, it is expected that the Federal Reserve (Fed) would maintain higher interest rates for a longer time. The US Treasury bond yields are still supported by this hawkish view, which benefits those who are bullish on the greenback.
— Martino Agostini (@tarifabeach) September 12, 2023
Investors will indeed keep a close eye on the upcoming data releases from the United States (US). The US ISM Services PMI for August and the US S&P Global PMIs are scheduled for release later in the North American session. These data releases will offer valuable insights into the present economic scenario in the United States and have the potential to provide a more defined direction for the USD/JPY pair.