Bank of Japan Policy Signals Suppress Yen
This Friday during the Asian session, the dollar slightly rebounded against the yen near 147.34, primarily influenced by the latest minutes from the Bank of Japan's policy meeting. The minutes indicated that although most members still lean towards future rate hikes, concerns about U.S. tariffs impacting Japan’s economy have weakened confidence in a short-term rate increase.
Analysts pointed out that the Bank of Japan remains cautious regarding inflation persistence and the strength of economic recovery, significantly cooling the rate hike expectations for the year.
Consumer Data Increases Market Worries
The latest economic data shows Japan's household spending in June decreased by 5.2% month-on-month, the largest drop since January 2021, reflecting rising prices dampening consumer willingness to spend. These data not only weaken market confidence in Japan's economic recovery but also somewhat depress yen buying.
Meanwhile, the strong performance of the Japanese stock market reduced safe-haven demands. The TOPIX index surpassed 3,000 points for the first time, and the Nikkei 225 index rose to its highest level since July 25, further driving funds towards risk assets.
Dollar Rebound Limited by Rate Cut Expectations
Although the dollar briefly recovered against the yen, its upward potential is limited. The probability of a rate cut by the Federal Reserve in September has exceeded 90%, and the market generally expects more than one rate cut action within the year. The weekly initial jobless claims in the U.S. increased for the second consecutive week, indicating escalating signs of labor market cooling, further reinforcing easing expectations.
Additionally, the uncertainty over the Federal Reserve's independence also impacts the dollar's movement. Trump nominated White House Council of Economic Advisers Chairman Stephen Milan to replace Fed Governor Kugler and has started selecting a potential replacement for Powell, making the policy outlook more uncertain.
Technical Analysis Shows Range Consolidation
Technically, the dollar against the yen is currently in a consolidation range of 147.75-146.70, with upper resistance concentrated around 147.80. This position is not only the 38.2% Fibonacci retracement level of the July rise but also an important short-term technical threshold. If it breaks through 148.00, the target may point to the 148.50 or even 149.00 area.
Support below is located around 146.70, where the 4-hour chart’s 200-period moving average and the 50% retracement level coincide for resonance support. If breached, it may trigger a larger scale of yen buying, with the price possibly retreating to 145.95 or even testing the 145.00 mark.
Policy and Data are Key
Looking ahead, the trajectory of the dollar against the yen will still depend on two major factors: one is whether the Bank of Japan clearly outlines a rate hike path within the year, and the other is whether the Federal Reserve's rate cut pace proceeds as swiftly as the market anticipates. If Japan's economic data remains weak and the Federal Reserve accelerates its easing, the dollar against the yen may maintain a bullish outlook amidst fluctuations, but volatility is likely to increase.
