Japanese Yen experiences volatility due to more FX intervention risks

■  The Japanese Yen edges lower as the US Dollar improves due to higher Treasury yields.

■  Japanese Chief Cabinet Secretary Yoshimasa Hayashi has expressed readiness to utilize all available measures concerning forex matters.

■  Fed’s Goolsbee stated that the US economy appears to be on track to achieve 2% inflation.

The Japanese Yen (JPY) trims its gains as the US Dollar (USD) strengthens, buoyed by improved Treasury yields. However, the JPY's volatility is anticipated to persist amid speculation of intervention by Japanese authorities following weaker-than-anticipated US Consumer Price Index (CPI) figures.

Japanese Chief Cabinet Secretary Yoshimasa Hayashi stated his readiness to employ all available measures regarding forex. Hayashi noted that the Bank of Japan (BoJ) would determine the specifics of monetary policy. He expects that the BoJ will implement appropriate measures to sustainably and steadily achieve the 2% price target, reported by Reuters on Friday.

The Bank of Japan (BoJ) could raise interest rates at its upcoming July meeting. This expectation bolstered the JPY, contributing to a decline in the USD/JPY pair.

Daily Digest Market Movers: Japanese Yen experiences fluctuations amid intervention threats

On Friday, Japanese Finance Minister Shunichi Suzuki emphasized that rapid foreign exchange (FX) movements are undesirable. Suzuki refrained from commenting on FX intervention and declined to address media reports regarding Japan's FX rate checks, as reported by Reuters.

Federal Reserve Bank of Chicago President Austan Goolsbee said on Thursday that the US economy appears to be on track to achieve 2% inflation. Goolsbee stated "My view is, this is what the path to 2% looks like," according to Reuters.

The US Consumer Price Index (CPI) declined by 0.1% month-over-month in June, marking its lowest level in over three years. The headline CPI increased by 3.0% MoM in June, down from a 3.3% rise in May and below the market consensus of 3.1%.

The core CPI, which excludes volatile food and energy prices, rose by 3.3% year-over-year in June, compared to May's increase of 3.4% and the same expectation. Meanwhile, the core CPI increased by 0.1% month-over-month, against the expected and prior reading of 0.2%.

Peter Boockvar, chief financial officer at US-based Bleakley Financial Group, said that the Yen's weakness will trigger the BoJ to "react sooner rather than later," per Reuters.

Reuters reported on Wednesday, citing unnamed sources, the Bank of Japan will likely trim this year's economic growth forecast and project inflation will stay around its 2% target in coming years at its meeting this month.

Federal Reserve Chairman Jerome Powell highlighted the urgent need to monitor the deteriorating labor market on Wednesday. Additionally, Powell expressed confidence in the downward trend of inflation, following his remarks on Tuesday that emphasized the necessity of further data to strengthen confidence in the inflation outlook.

According to a Bloomberg report on Tuesday, the Bank of Japan is conducting three in-person meetings with banks, securities firms, and financial institutions over the next few days. These meetings aim to assess a feasible pace for scaling back its purchases of Japanese Government Bonds.

Technical Analysis: USD/JPY rebounds toward 159.50

USD/JPY trades around 159.30 on Friday. The daily chart analysis shows a weakening bullish bias as it breached the lower boundary of an ascending channel pattern. Additionally, the 14-day Relative Strength Index (RSI) was slightly below the 50 level, indicating a decline in the momentum of the pair's price.

The USD/JPY pair may find initial support near the psychological level of 109.00. A break below this level could reinforce bearish sentiment, potentially prompting a revisit to June's low near 104.55.

On the upside, immediate resistance is seen around the 21-day Exponential Moving Average (EMA) at 109.82, followed by the lower boundary of the ascending channel near 109.95. A return to within the ascending channel would likely improve sentiment for the USD/JPY pair, potentially targeting the upper boundary of the channel around the 113.20 level.

USD/JPY: Daily Chart