July 24, 2024
New Delhi, India
JPY Yen Analysis
The Japanese Yen (JPY) continues its upward trajectory for the third consecutive session on Wednesday, buoyed by hawkish sentiment surrounding the Bank of Japan’s (BoJ) anticipated policy shift. The market expects the BoJ to raise interest rates at next week’s policy meeting, prompting short-sellers to cover their positions and providing substantial support to the JPY.
Key Developments:
- BoJ’s Hawkish Stance: Senior ruling party official Toshimitsu Motegi urged the BoJ to clearly communicate its plans for gradual interest rate hikes, while Prime Minister Fumio Kishida supported normalizing monetary policy to aid Japan’s economic transition. These statements have reinforced expectations of a rate hike.
- PMI Data: Japan’s Manufacturing PMI fell to 49.2 in July from 50.0, indicating a contraction in factory activity for the first time since April. Conversely, the Services PMI surged to 53.9 from 49.4, marking the sixth increase this year and the steepest pace since April.
- US Dollar Challenges: The US Dollar (USD) faces downward pressure as bets on a Federal Reserve (Fed) rate cut in September increase. CME Group’s FedWatch Tool now shows a 93.6% probability of a 25-basis point rate cut at the September Fed meeting, up from 88.5% a day earlier.
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Market Movements:
The JPY has gained strength due to the return of risk-off flows, with the BoJ’s anticipated rate hike providing additional momentum. Traders are closely watching upcoming US economic data, including the Purchasing Managers Index (PMI) and Gross Domestic Product (GDP) figures, for further insights into economic conditions and potential impacts on the USD/JPY pair.
Economic Indicators:
- Japan’s National CPI: June’s Consumer Price Index (CPI) held steady at 2.8%, with Core CPI inflation rising slightly to 2.6%, just below the consensus estimate of 2.7%.
- JP Morgan’s Stance: JP Morgan does not expect a rate hike from the BoJ in July or at any point in 2024, suggesting it is too early to adopt a bullish stance on the Yen.
- BoJ Interventions: Recent BoJ data indicates potential intervention by purchasing nearly ¥6 trillion on July 11-12, and Japan sold approximately $22 billion in US Treasuries in May to bolster its reserves for potential foreign exchange market operations.
Outlook:
Despite the mixed PMI data, the Japanese Yen remains strong, driven by expectations of a BoJ rate hike and market sentiment. As traders await further US economic data, the JPY’s performance will likely continue to be influenced by both domestic policy signals and international economic developments.
Disclaimer:
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