Japanese Yen improves possibly due to verbal intervention by Japan’s Hayashi

■  The Japanese Yen extended gains as Japan's Yoshimasa Hayashi stated that authorities would respond appropriately to excessive currency volatility.

■  The JPY appreciated as Japanese authorities spent billions of dollars on a Yen-buying intervention.

■  CME FedWatch Tool indicates 67.7% odds of a Fed rate cut in September, compared with 61.5% a week earlier.

The Japanese Yen (JPY) extends its gains for the second consecutive session on Tuesday. The USD/JPY pair remains within touching distance of the 160.00 level that recently pushed Japanese authorities to spend billions of dollars in Yen-buying intervention, per Reuters.

Japan’s Corporate Service Price Index (YoY) rose 2.5% in May, slowing from a 2.7% increase in April. Investors now look ahead to more domestic economic reports this week including Retail Sales, Unemployment data for May and Tokyo’s inflation figures for June.

On the USD front, the revised US Gross Domestic Product (GDP) for the first quarter (Q1) is set to be released on Thursday, followed by the Personal Consumption Expenditure (PCE) Price Index on Friday.

Daily Digest Market Movers: Japanese Yen extends gains due to intervention threat

According to the CME FedWatch Tool, investors are pricing in 67.7% odds of a Fed rate cut in September, compared to 61.5% a week earlier.

According to a Reuters report, Japanese Chief Cabinet Secretary Yoshimasa Hayashi stated on Tuesday that authorities would respond appropriately to excessive currency volatility. This fresh warning comes as the Japanese Yen has approached the key 160 per US Dollar level.

As long as the USD/JPY pair remains above 159.30, it could rise above 160.00, potentially reaching another resistance level at 160.25, UOB Group analysts note.

Japan's top currency diplomat, Masato Kanda, stated on Monday that he would take appropriate measures if there were excessive movements in the foreign exchange market. Kanda cautioned against the negative economic effects of such movements and emphasized his readiness to intervene around the clock if necessary, per Reuters.

On Monday, minutes of the Bank of Japan's last meeting showed that Japanese policymakers discussed a near-term interest rate hike. According to a Reuters report, one member advocated for an increase "without too much delay" to help bring inflation back down.

Strong US business activity data from Friday dampened expectations for Federal Reserve (Fed) interest rate cuts. US Composite PMI for June surpassed expectations, rising to 54.6 from May’s reading of 54.5. This figure marked the highest level since April 2022. The Manufacturing PMI increased to a reading of 51.7 from a 51.3 figure, exceeding the forecast of 51.0. Similarly, the Services PMI rose to 55.1 from 54.8 in May, beating the consensus estimate of 53.7.

Reuters reported that Bank of Japan Deputy Governor Shinichi Uchida stated on Friday that the central bank would "adjust the degree of monetary support" if the economy and prices align with its forecasts. This signals the bank's readiness to raise interest rates further.

Japan reaffirmed its commitment on Friday to achieve a primary budget surplus by the next fiscal year. This decision reflects concerns that exiting the ultra-low interest rate environment could increase the government's debt burden, according to Reuters.

Technical Analysis: USD/JPY holds a position around the 159.50 level

USD/JPY trades around 159.30 on Tuesday. Analyzing the daily chart shows a bullish bias, with the pair hovering near the upper boundary of an ascending channel pattern. The 14-day Relative Strength Index (RSI) is positioned above the 50 level, indicating upward momentum.

Surpassing the upper threshold of the ascending channel pattern around 159.90 will reinforce the bullish sentiment, potentially driving the USD/JPY pair toward 160.32, the highest level since April and a major resistance point.

On the downside, immediate support appears at the nine-day Exponential Moving Average (EMA) at 158.60. A breach below this level could intensify downward pressure on the USD/JPY pair, potentially driving it toward the lower boundary of the ascending channel around 155.60. A break below this level could push the pair to test the throwback support around 152.80.

USD/JPY: Daily Chart