• The Japanese yen fell to around 162 yen against the dollar, falling further to its lowest level since 1986, keeping markets wary of further government intervention.
• The currency was pinned in a slump due to the stark difference in interest rates between Japan and the United States, in addition to the increased odds of a second Donald Trump presidency.
• This could push Treasury yields even higher. The USD/JPY rate was around 161.50 at the time of writing.

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The Bank of Japan’s lack of urgency to normalize monetary conditions has also weighed on the yen, despite growing speculation that the Bank of Japan may raise interest rates at its next policy meeting in late July. The central bank noted that the weaker yen is pushing up import costs, adding to inflationary pressures and hurting household consumption. Meanwhile, Japanese Finance Minister Shunichi Suzuki reiterated on Tuesday that the government remains vigilant on currency movements, noting that foreign exchange levels reflect a complex mix of factors.

On the US central bank policy front, according to the minutes of the last meeting, the Federal Reserve left the target range for federal funds unchanged at 5.25%-5.50% for the seventh straight meeting in June 2024, in line with expectations. Policymakers do not expect it to be appropriate to lower interest rates before they gain more confidence that inflation is moving sustainably towards 2%.

Meanwhile, the dot chart showed that policymakers see just one rate cut this year and four in 2025. In March, the Fed was forecasting three cuts in 2024 and three in 2025. However, the Fed made no changes to its GDP growth forecast and still sees the economy expanding by 2.1% in 2024, and 2% in 2025 and 2026. Personal consumption expenditures inflation was revised higher for 2024 (2.6% vs. 2.4% in March) and next year (2.3% vs. 2.2%) but remained at 2%. For 2026. Furthermore, core inflation for personal consumption expenditures was also revised to 2.8% in 2024 (from 2.6%) and 2025 (2.3% from 2.2%) but was kept at 2% for 2026. Also, the unemployment rate is expected to reach 4% in 2024, as expected in March, but is expected to rise slightly to 4.2% in 2025 (from 4.1%).

USD/JPY Technical Analysis and Expectations Today

As expected, the overall trend for USD/JPY is expected to remain bullish, even if the dollar weakens against other major currencies until Japanese intervention in the forex markets to stop the currency's collapse. If intervention does occur, it will bring strong profit-taking selling, turning the pair bearish in the short term. Currently, the nearest resistance levels are 161.75, 162.30 and 163.00, respectively. However, it should be noted that the release of US employment figures tomorrow will have a strong impact on the performance of the dollar.

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