Chart of the day - USDJPY (24.09.2024)

The latest economic data from Japan presents a mixed picture, with manufacturing PMI contracting further while services PMI expands. This economic divergence, coupled with the Bank of Japan's cautious stance, is creating a complex environment for the USDJPY pair, especially as expectations grow for faster Fed rate cuts in the coming year.

The USDJPY pair has shown vulnerability in recent trading sessions as the divergence between Fed and BoJ policies becomes more pronounced. The recent 50 basis point rate cut by the Fed, coupled with growing expectations of further easing, has put significant pressure on the US Dollar. Meanwhile, the Bank of Japan's reluctance to shift from its ultra-loose monetary policy is creating a unique dynamic for the Yen, which finds itself caught in domestic economic concerns.

Investors should prepare for potential volatility in the coming weeks as markets process the diverging economic data and adjust to evolving central bank policy expectations. The BoJ's future guidance and economic projections will be crucial in shaping market sentiment towards the Yen. Japanese exporters, particularly those in the manufacturing sector, are likely to be highly sensitive to USDJPY movements and BoJ commentary. The manufacturing sector's continued decline is particularly concerning, with the PMI falling to 49.6 in September, marking its third consecutive month in contraction territory. This downturn is in stark contrast to the services sector, which continues to show resilience with a PMI of 53.9.

The ongoing debate about Japan's economic recovery and inflation targets is likely to intensify given these mixed economic indicators. Despite the challenges in manufacturing, there's a glimmer of hope that strong private consumption, fueled by wage increases, could help sustain economic growth and potentially influence the BoJ's policy decisions in the coming months.

The potential for faster Fed rate cuts could provide further downward pressure on the USDJPY pair, potentially benefiting Japanese importers and companies with significant USD-denominated debts. However, a weaker Yen could also boost Japanese exports and corporate profits when repatriated, potentially supporting the Nikkei index. Nonetheless, ongoing economic weakness, particularly in the manufacturing sector, may continue to create headwinds for certain segments of the Japanese economy.

USDJPY (D1 interval)

USDJPY is currently approaching a key resistance within the downward trend. This level has acted as strong resistance twice before, leading to a continuation of the downtrend. Since the beginning of August, lower highs and lower lows have been observed. The resistance also aligns with the 50% Fibonacci retracement level, which served as strong resistance at the end of August. The RSI is trending upwards and showing bullish divergence, while the MACD is making higher highs and higher lows, with a recent crossover indicating a buy signal.