Japanese Yen Drops After FOMC
The current outlook for the low-yielding Japanese yen suggests a broader bearish trend against certain peer currencies, as supported by several factors such as the possibility of higher US interest rates for an extended period, a generally improved risk appetite, and unexpected interest rate increases by both the Reserve Bank of Australia and Bank of Canada last week.
The yen has experienced significant weakening against currencies of central banks that have increased interest rates, such as the RBA, BOC, BOE, and ECB. However, this trend is less pronounced in areas where central banks have either paused (Fed) or indicated that rates have reached their peak (NZD).
The US Federal Reserve has decided to maintain the current interest rates on Wednesday. However, they suggested that the increase in rates may not be over yet and could potentially rise by up to 50 basis points due to the slower-than-expected moderation in inflation and the resilience of the US economy. The focus now turns to the upcoming meeting of the Bank of Japan on Friday. It is anticipated that they will maintain their ultra-loose monetary policy and yield-curve control policy, thereby reaffirming their bearish bias towards JPY.
The US Federal Reserve has decided to maintain the current interest rates on Wednesday. However, they suggested that the increase in rates may not be over yet and could potentially rise by up to 50 basis points due to the slower-than-expected moderation in inflation and the resilience of the US economy. The focus now turns to the upcoming meeting of the Bank of Japan on Friday. It is anticipated that they will maintain their ultra-loose monetary policy and yield-curve control policy, thereby reaffirming their bearish bias towards JPY.
Kazuo Ueda, the Governor of the Bank of Japan, has reaffirmed the institution’s commitment to maintaining its accommodative monetary policy. This decision is primarily informed by the fact that there is still a considerable gap between current inflation levels and the bank’s long-term goal of achieving a sustainable 2% inflation rate. Recent data released last week reveals that Japan’s economy performed better than anticipated during the first quarter of 2021. This growth was driven by an increase in domestic spending and inventory accumulation.
USD/JPY Daily Chart
USD/JPY: Running into crucial resistance
The current resistance level for USD/JPY is at the upper boundary of a rising channel that has been in place since early 2023, which also corresponds to the high point of 142.25 at the end of 2022. Additionally, there is another obstacle at approximately 143.75 on the median line of a pitchfork channel from January. Despite these challenges, there is no indication that the upward trend will reverse, and recent rebound from significant support at the March high of 137.90 suggests an increased likelihood of further gains for USD/JPY. However, if the pair falls below the early-June low of 138.50, bullish pressure may weaken.
AUD/JPY Daily Chart
AUD/JPY: Cracks above a key ceiling
The AUD/JPY currency pair has recently surpassed a challenging combined obstacle located on the 200-day moving average, which also corresponds to the February peak of 93.00. This breakthrough has been accompanied by powerful momentum, indicating that the upward trend may continue and potentially reach the price target of 96.50, as predicted by the ascending channel since April.
GBP/JPY Daily Chart
GBP/JPY: Shifts to a higher gear
The recent breakout of GBP/JPY above the median line of its pitchfork channel since February signifies a significant increase in momentum. Despite the median line posing as a formidable obstacle in previous weeks, the recent breakthrough reflects a surge in gains. However, it should be noted that the cross is currently overbought, suggesting a probable period of consolidation or minor setback in the immediate future. The next point of resistance lies at the upper edge of the channel, currently estimated at around 181.75.
