Dollar/yen 147 level saw off, yen support coexisted with political uncertainty

According to the latest official data, Japan's producer price index (PPI) rose 2.7% year-on-year in August, an increase from the previous value of 2.6%, while the annualized growth rate of gross domestic product (GDP) in the second quarter was revised up to 2.2%.

In addition, household spending picked up and real wages rose for the first time in seven months, strengthening market expectations for the Bank of Japan to raise interest rates this year. In contrast, the US PPI data cooled sharply to 2.6%, further strengthening the probability that the Federal Reserve will cut interest rates at its September meeting.

However, domestic political uncertainty in Japan and rising global risk appetite have somewhat weakened the yen's safe-haven appeal. Investors, including those in BCRForex PlatformTraders who follow market movements are choosing to remain cautious ahead of the release of the US CPI, which also limits the volatility of the dollar-yen exchange rate.

Most market participants expect the Fed to cut interest rates three times over the rest of the year, and there is a probability of 50 basis points of aggressive action at the September meeting. A move by the Bank of Japan to raise interest rates would diverge significantly from the Fed's easing cycle, providing long-term support for the yen.

From the daily chart, the momentum of the dollar against the yen has weakened after rebounding from the low point in August, and it is currently consolidating near the 147.00 mark. If it falls below this key support, the exchange rate may further lower the 146.30 area; if it loses 146.00, it may accelerate to fall back to the 145.35 or even the 145.00 integer mark.

On the contrary, on the upside, the preliminary resistance is located in the 147.80 range. If it breaks through the 148.00 integer mark, it is expected to test the 200-day moving average (148.75) and further challenge the monthly high of 149.15. Overall, the RSI indicator is weak and still faces some downward pressure in the short term.

Editorial opinion:

At this stage, the key to the trend of the dollar against the yen is whether the support level of 147.00 can be held. If the US CPI data further confirms the slowdown in inflation, the expectation of the Federal Reserve's interest rate cut will suppress the dollar and push the exchange rate to break the 147 mark. On the contrary, if the inflation data exceeds expectations, the dollar may rebound in the short term, but the pressure range above 148.00 is still more obvious.