During the Asian trading session on Wednesday, the USD/JPY pair attracted new sellers and fell back below the 142.00 level, erasing some of its recent gains and stalling its recovery from the lowest levels seen since July 2023 earlier this week. The current market conditions suggest a downward trajectory for the USD/JPY pair, though traders are likely to hold off on making significant moves ahead of key central bank announcements.
The Federal Reserve is expected to announce its decision at the conclusion of its two-day meeting later today, with widespread anticipation of the initiation of a policy easing cycle. Following this, attention will turn to the Bank of Japan’s (BoJ) policy update scheduled for Friday, which is anticipated to influence the Japanese Yen (JPY) and provide fresh direction for the USD/JPY pair. The current cautious market sentiment, combined with differing policy expectations between the Fed and the BoJ, has led to increased demand for the JPY, contributing to downward pressure on the USD/JPY pair.
Market expectations are leaning towards a significant 50 basis points (bps) rate cut by the Fed, driven by easing inflationary pressures. This expectation has overshadowed the better-than-expected US Retail Sales data released on Tuesday, failing to support the US Dollar (USD) in extending its bounce from a 2024 low. In contrast, recent hawkish signals from BoJ officials suggest a potential rate hike by the end of the year, bolstering the JPY’s relative strength and exerting additional pressure on the USD/JPY pair.
Meanwhile, JPY bulls appear largely unaffected by Japan’s August trade data, which showed weaker-than-expected figures for both exports and imports. Official data indicated that Japan’s exports increased for the ninth consecutive month, rising by 5.6% year-over-year in August, but at a slower pace than anticipated. Imports grew by a modest 2.3%, also falling short of expectations. Despite these figures, the underlying bullish sentiment towards the JPY remains strong, supporting the negative outlook for the USD/JPY pair and reinforcing the potential for a continuation of the recent downtrend.
