USD/JPY draws the attention of sellers around the 153.55 mark during the early hours of Wednesday’s Asian session. The Bank of Japan is expected to increase its key interest rate by 25 basis points in September. Market participants are closely monitoring the upcoming US inflation data for insights regarding the trajectory of interest rates in the United States. The USD/JPY pair experiences a decline in momentum, settling at approximately 153.55 during the early hours of the Asian session on Wednesday. The Japanese Yen strengthens against the US Dollar as Bank of Japan policymakers opened the door for a rate hike in September. Market participants will pay close attention to the forthcoming US inflation data, set to be released later this week. The BoJ is anticipated to increase its policy rate to 1.25% from the existing 1.0% during its September policy meeting, indicating a quicker tempo in the rate hike trajectory.
The move would elevate the interest rate to its peak level in approximately 31 years and come on the heels of a rate increase in June, as the Japanese central bank aims to mitigate the risk of inflation exceeding expectations due to rising crude oil prices and a depreciating yen. BoJ board member Hajime Takata indicated last week that the central bank might adopt a more assertive strategy than previously anticipated. He stated that a 25-basis-point hike “is not necessarily set in stone,” and that, generally speaking, consecutive rate hikes could also be a possibility. The US Producer Price Index and Consumer Price Index inflation data will be of paramount importance later this week. These readings may provide new insights into the Federal Reserve’s upcoming decisions at the September meeting. In the event of inflation outcomes exceeding expectations, this may strengthen the Greenback relative to the JPY in the short term.
Market participants are currently assigning a probability of approximately 60% to the likelihood of an interest rate increase during the upcoming policy meeting of the US central bank, as indicated by the CME FedWatch Tool. Analysts note that the recent slide in USD/JPY has materially shifted their medium-term bias. They recall that as of Friday, 04 Sep, when spot was trading around 155.90, they had highlighted that “conditions are deeply oversold” after the sharp drop the previous Thursday and that USD “must close below 155.00 before further declines are likely,” with “the next level to watch below 155.00” identified at “154.20.” However, UOB points out that “yesterday, in an unexpectedly sharp move, USD broke below 155.00 and plunged to a low of 154.04.” This price action, they argue, “suggests USD is likely to continue to weaken,” with “the next support level to watch” now the “year-to-date low of 152.08.” According to the bank, “the downside pressure will remain intact as long as USD holds below 156.00,” which they now describe as a “strong resistance” level, revised down from 157.50 previously.
In the daily chart, USD/JPY continues its bearish trajectory, with the price positioned beneath the complete 20-day Bollinger envelope and significantly below the 100-day Simple Moving Average. The slide beneath the lower Bollinger Band underscores strong downside pressure, while the Relative Strength Index (14) at 25 signals oversold conditions that could slow, but not yet reverse, the decline. On the topside, initial resistance is positioned at the breached lower Bollinger Band around 154.05, followed by the 20-day Bollinger middle band near 158.20, where recovery attempts would likely encounter renewed selling pressure. Above that, the 100-day SMA at 159.80 and the upper Bollinger Band near 162.32 form a broader resistance zone that must be reclaimed to alleviate the prevailing bearish bias.
