26 June 2024, USD/JPY
USDJPY:
Japan's Deputy Finance Minister Masato Kanda confirmed that the government is ready to take appropriate measures if excessive currency fluctuations have a negative impact on the national economy. However, Kanda's comments had minimal impact on the Japanese Yen (JPY) exchange rate amid the Bank of Japan's reluctance to provide a detailed plan to reduce bond purchases. This is a significant divergence from the hawkish stance of the Federal Reserve (Fed) and suggests that the path of least resistance for the USD/JPY pair lies to the upside.
Amid the Fed's hawkish pause in June, recent comments from policymakers indicated that the central bank is in no hurry to start a rate cut cycle. Fed Chair Michelle Bowman on Tuesday reiterated her view that keeping rates steady for some time is likely to be enough to bring inflation under control. Fed Chair Lisa Cook said lower interest rates would be appropriate "at some point" given the significant progress in inflation and the gradual cooling of the labor market, but did not elaborate on the timing of the easing.
Nevertheless, signs of easing inflationary pressures in the US keep hopes alive for the Fed's first interest rate cut in September. This, in turn, keeps dollar bulls away from aggressive bets and limits the upside potential of the USD/JPY pair. Traders also prefer to stay on the sidelines ahead of the final US GDP data for the first quarter on Thursday, which will be followed by the publication of the Personal Consumption Expenditures (PCE) price index on Friday. The latter indicator will influence the Fed's further decision and will determine the near-term trajectory of the currency pair.
Trading recommendation: Trade mainly with Buy orders from the current price level
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