BOJ rate hike likely, yen rally at risk
BOJ expected to hike rates next week, but yen rally may be limited if Ueda signals caution.
USD/JPY bounced near the 155.00 support after Fed's Waller turned dovish; markets await the US NFP report for further direction.
The US dollar fell broadly on Wednesday after Fed Governor Waller made surprisingly dovish remarks. Though he took a more hawkish position earlier in the summer, his tone on Tuesday suggested a lower willingness to increase rates.
Waller stated that he has at last observed indications of disinflation, and he would not prefer to hike rates in such an environment. He expressed a readiness to delay for an additional month to "give disinflation a chance." Additionally, he noted that the September policy decision hinges on the next CPI release. Should the data be strong, he would contemplate a rate increase.
Probabilities of a rate increase for the September gathering fell sharply, as the market now assigns only a 48% probability of a hike. In the wake of Waller's remarks, in this analyst's view, only a strong CPI report could prompt the Fed to raise rates at the next meeting.
The US NFP report is due today, but with the Fed's attention on inflation, notable upside or downside surprises are needed for a meaningful market response. A hot reading would likely reverse the post-Waller moves, while a weak one could amplify the previous session's trends.
Regarding the yen, the currency is said to have gained on hawkish repricing after BoJ member Takata's comments. However, the author believes this was not the cause, since Takata is the most hawkish member and interest rate expectations have hardly shifted.
More probably, profit-taking occurred before the key resistance at 160.50 on USD/JPY, or there were covert interventions. Indeed, some rapid moves lacked any clear catalyst.
BoJ Governor Ueda also spoke about monetary policy recently but provided no fresh insights. In this analyst's view, his remarks were somewhat less hawkish.
The September rate increase is already fully discounted, so it will not drive market action. Attention will be on forward guidance and indications of a possible accelerated pace. The USD/JPY uptrend is unlikely to alter unless there is a dovish shift in Fed rate expectations or a more aggressive BoJ tightening.
USD/JPY fell all the way to the major 155.00 support area. Buyers on dips stepped in with a defined risk below that level, aiming for a rebound to the 160.50 resistance. Sellers, conversely, look for a break lower to add to bearish positions targeting the 152.50 support.
Bearish momentum strengthened significantly after the upside trendline was broken, and the price ultimately fell back to the 155.00 support. This timeframe offers limited information, so a closer look is necessary for more detail.
A downward trendline defines the bearish momentum on this timeframe. Sellers are expected to use that trendline as resistance, with a stop above it, aiming for a breakdown below support. Buyers, meanwhile, look for a move above the trendline to add to long positions targeting the 160.50 resistance.
The week ends today with the release of the US nonfarm payrolls report.
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