Japanese Yen Struggles to Gain Bullish Momentum Against USD; BoJ Rate Hike Bets Remain in Limbo

Key Insights: The Japanese Yen (JPY) struggles to gain significant strength against the US Dollar (USD) despite expectations for a Bank of Japan (BoJ) rate hike. Weak wage data and the Federal Reserve’s rate-cut bets are limiting bullish momentum for both currencies.

Japanese Yen Faces Mixed Cues Amid Weak Data and BoJ Policy Patience

The Japanese Yen (JPY) showed some signs of dip-buying against the US Dollar (USD) during the Asian session on Wednesday, but it lacks bullish conviction. After a sharp retracement from a nearly two-week high, the JPY stalled its earlier gains. Despite rising speculation that the Bank of Japan (BoJ) might increase interest rates by the end of this year, weaker-than-expected wage data and domestic political uncertainty have tempered these expectations, capping the Yen’s potential upside.

Earlier today, data revealed that real wages in Japan had fallen for the sixth consecutive month in June, further fueling concerns about a consumption-driven recovery. This, combined with domestic political instability, may delay the BoJ’s policy normalization and weigh on the Yen.

Weak Japanese Wage Data Adds Pressure on BoJ Rate Hike Bets

• Nominal wages rose 2.5% YoY in June, but the figure fell below expectations, reflecting weak economic conditions.
• Real wages saw a 1.3% YoY decline, indicating stagnant consumer spending power.
• Inflation-adjusted wages are an essential gauge for the BoJ, and their continued weakness raises doubts about the pace of rate hikes.

Additionally, BoJ Governor Kazuo Ueda has reiterated the need for continued policy patience, further dampening expectations of an imminent rate increase. The Liberal Democratic Party’s loss in July’s polls has added to concerns about Japan’s fiscal health, potentially complicating the BoJ’s policy decisions.

US Dollar Faces Pressure Amid Fed Rate Cut Expectations

On the other hand, the US Dollar (USD) has struggled to attract buyers due to the growing consensus that the Federal Reserve (Fed) will cut interest rates in September. The ISM Services PMI released this week dropped to 50.1 in July, down from 50.8 in June, further supporting the case for a Fed rate cut.

• US Nonfarm Payrolls data released last Friday was also weaker than expected, adding to concerns over the economic health of the US and USD weakness.
• The US trade deficit narrowed in June, as expected, to $60.2 billion from $71.7 billion in May, reflecting a dip in imports and a reduction in tariff-induced price spikes.

Despite USD weakness, equity market optimism has kept the safe-haven JPY in check, preventing it from strengthening significantly.

USD/JPY Technical Analysis: Key Levels and Trends

From a technical standpoint, the USD/JPY pair has been consolidating just below the 50% Fibonacci retracement level of its previous rally. The recovery above this level suggests potential upside momentum, though significant resistance lies ahead near 148.00.

• Immediate support is seen at the 147.45 level, with further downside potential if prices fall below 146.85, coinciding with the 200-period SMA on the 4-hour chart.
• Resistance levels: The 147.75 level, the 38.2% Fibonacci retracement, is a key barrier. A break above 148.00 could lead to further gains toward the 148.45-148.50 range and potentially the 149.00 psychological mark.
• Downside risk: A failure to hold above 147.45 may open the door for a deeper correction toward the 146.00 mark, with a potential move towards the 145.85 region, aligning with the 61.8% Fibonacci retracement level.

Outlook: Mixed Sentiment for JPY as Market Focus Shifts to BoJ and Fed

• JPY’s bullish potential remains limited as weak wage data and BoJ’s policy patience keep the currency in check.
• The USD/JPY pair is likely to continue fluctuating within the 147.00-148.00 range until US Fed policy and BoJ rate decisions provide clearer direction.

Summary: EUR/JPY Outlook Hinges on Fed and BoJ Policies

• Japanese Yen faces downward pressure from weak wage data and uncertain BoJ policy.
• US Dollar struggles with rate cut bets and weaker-than-expected economic data.
• Key technical levels for USD/JPY to watch: 147.45 (support) and 148.00 (resistance).

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