USD/JPY has exhibited notable volatility, the broader context suggests that the pair may continue to trade within its established range.
The USD/JPY currency pair experienced significant volatility at the start of the week, dropping by approximately 1.7% during the Asia-Pacific session, momentarily breaching the lower end of the pre-U.S. retail sales range at 146.00 to reach a low of 145.20. However, given the light news flow and the typically subdued summer trading volumes, this sharp movement may be more indicative of market noise rather than a clear directional signal. The key events on the horizon for USD/JPY traders will be the upcoming speeches from Bank of Japan (BoJ) Governor Kazou Ueda and Federal Reserve Chair Jerome Powell, both scheduled for Friday.
Governor Ueda will testify before parliament, providing his latest insights on monetary policy following last month’s rate hike by the BoJ. Notably, after the rate hike, Ueda took a decidedly hawkish stance, which contributed to a significant carry trade unwind and a subsequent downturn in Japanese equities. This stance has since been tempered by Deputy Governor Shinichi Uchida, who dialed back the hawkish rhetoric, helping to support the rebound in USD/JPY from the 141.70 level. If Ueda’s testimony echoes Uchida’s more dovish tone, the yen could face renewed pressure, potentially testing recent highs around 149.40.
On the other hand, Federal Reserve Chair Jerome Powell’s upcoming remarks at the Jackson Hole symposium are also highly anticipated. Powell faces a high bar for delivering a dovish message, given the recent U.S. economic data that has pushed back against concerns of a significant economic slowdown. Currently, market expectations are pricing in 95bps of easing by the end of the year, implying that the Fed would need to implement at least one 50bps rate cut in the remaining meetings. However, the most probable outcome for the Fed’s September meeting is a more modest 25bps cut, which Powell is likely to signal. Should Powell indicate that the Fed will opt for a smaller rate cut, this could lead to a slight resurgence in dollar strength, limiting the downside for USD/JPY in the near term.
Technically, USD/JPY remains within its familiar trading range of 146-148, having briefly dipped below support at 146. The pair’s inability to sustain a move beyond the 150 level suggests that further upside may be limited unless Powell surpasses the already high dovish expectations. Conversely, the yen has garnered some support, with speculators turning net long on JPY for the first time since 2021, which could signal potential downside pressure for USD/JPY if dovish signals from Ueda or Powell materialize.
In conclusion, while USD/JPY has exhibited notable volatility, the broader context suggests that the pair may continue to trade within its established range. The upcoming speeches from Ueda and Powell will be crucial in determining the pair’s next directional move, with the potential for either a retest of recent highs or further downside, depending on the tone of their remarks.
