The USD/JPY pair traded in a narrow range on Tuesday, hovering near 159.32, as investors weighed a hawkish signal from the Bank of Japan against upcoming remarks from Federal Reserve Governor Kevin Warsh at the Jackson Hole Symposium. The pair has climbed about 2.7% from its monthly low, supported by resilient US economic data and expectations that the Fed may keep rates higher for longer.
US inflation and growth data
Fresh US data released Wednesday showed the personal consumption expenditures (PCE) price index rose 3.7% year-over-year in July, unchanged from June and above the 3.6% consensus forecast. On a monthly basis, PCE inflation increased 0.2%, also exceeding expectations. The core PCE gauge, which excludes food and energy, remained elevated, reinforcing the view that inflation is still running well above the Fed's 2% target.
Meanwhile, the latest GDP figures indicated the US economy continues to expand at a solid pace, though some analysts worry that persistent price pressures could prompt the Fed to maintain its restrictive stance. Rising gasoline and diesel prices, with the national average for regular gasoline above $4 per gallon, are adding to the inflation concerns even as crude oil benchmarks have retreated from recent highs.
Warsh's Jackson Hole speech in focus
Investors are now turning their attention to Kevin Warsh's address at the Jackson Hole Symposium, scheduled for later this week. Warsh, who has been nominated to lead the Fed, has historically avoided providing clear forward guidance, preferring to keep policy options open. His past statements have been deliberately vague, and market participants are uncertain about the near-term path of interest rates.
According to Polymarket, the probability of a rate hike in December stands at roughly 53%. Robert Gill, a portfolio manager at Fairbank Investment, noted that the lack of direction from the Fed is creating uncertainty and contributing to higher long-term bond yields, which he believes is an outcome the central bank is intentionally designing.
BoJ official hints at September hike
On the Japanese side, Bank of Japan Deputy Governor Ryozo Himino said the central bank could consider raising interest rates at its next meeting in September if underlying inflation remains persistently above the 2% target. He warned that a deviation above the target would have adverse effects on the economy, signaling a potential shift in policy.
A rate hike by the BoJ would be bullish for the yen, which remains near multi-decade lows. It would also help narrow the interest rate differential between the US and Japan, reducing the appeal of the yen as a funding currency for carry trades. The market will get more clarity on Japanese inflation when Tokyo's Consumer Price Index for August is released on Thursday, with economists expecting a 1.8% year-over-year increase.
Technical outlook
From a technical perspective, the USD/JPY pair has been consolidating in recent sessions, trading just above the 50-period exponential moving average on the four-hour chart. The formation of an ascending triangle pattern suggests a potential bullish continuation, with the MACD indicator showing positive momentum above the zero line.
If the pair breaks above the key resistance level of 159.72, it could target the year-to-date high of 163.97. However, a failure to hold above the 50-EMA might lead to a retest of support near 158.00. The upcoming speeches and inflation data will likely determine the next directional move.
This article is for informational purposes only and does not constitute financial advice.
