Japanese Yen Plummets to Fresh Low, Further Downside Likely
The Japanese Yen (JPY) continues its freefall against the US Dollar (USD), hitting a multi-decade low of 156.99 on Friday. Market dynamics remain strongly against the JPY, setting the stage for potential further declines.
Key Factors Driving JPY Weakness:
- BoJ Policy Stance: The Bank of Japan's unchanged dovish policy, contrasting with a hawkish Fed, continues to weigh heavily on the JPY.
- Cooling Japanese Inflation: Signs of easing inflationary pressures in Japan reduce the urgency for any shift in BoJ policy.
- Risk-On Sentiment: Positive global equity markets diminish the safe-haven appeal of the JPY.
- Widening Rate Differential: Expectations of a persistent interest rate gap between Japan and the US favor USD strength.
US Data Fuels Dollar Strength:
Fresh buying interest in the USD following stronger-than-expected US core PCE data provides an additional boost to USD/JPY. While the probability of a September Fed rate cut remains, it did little to dent the USD's upward momentum.
Technical Analysis: Extreme RSI Warrants Caution
- Overbought Conditions: The extremely overbought RSI on the daily chart suggests a possible near-term consolidation or modest pullback in USD/JPY before the next upward move.
- Key Support Levels: Corrective declines might find support near 155.35-155.30, followed by the 155.00 mark and the 154.70 area. A break below these levels targets the 154.00 round figure and potentially last Friday's swing low (153.60-153.55).