Yen Strengthens; Market Tests US Dollar's Resilience
The USD/JPY pair traded around 158.85 on Friday (August 21), weakening after a prior rebound from the 158.00 level. Pressure on the pair mounted as the Japanese yen gained support from recent inflation data, while the US dollar hovered near its lowest level since May due to diminished expectations for Federal Reserve policy tightening.
Japanese inflation data showed the July Core CPI rising 1.8% year-on-year—up from 1.6% in June and marking the fastest pace since January. Meanwhile, the core-core inflation measure (excluding fresh food and energy) also rose to 1.9%. These conditions reinforce expectations that the Bank of Japan (BoJ) retains room to continue normalizing monetary policy through interest rate hikes.
Conversely, the US dollar remains under pressure, with the Dollar Index (DXY) holding near lows not seen since May 14. Investors have begun scaling back expectations for aggressive Fed tightening, although persistent inflation risks keep the possibility of further rate hikes on the table.
Nevertheless, the US economy continues to demonstrate resilience. Recent S&P Global US Composite PMI data rose to 56.0 in August from 54.5 previously, signaling the fastest business activity expansion since April 2022. The services sector was a key driver, with its PMI climbing to 56.8, while the manufacturing sector remained in expansion territory, albeit slowing to 53.2.
Newsmaker Analysis: USD/JPY movements currently reflect a tug-of-war between yen strength—driven by a more hawkish BoJ outlook—and dollar support stemming from a solid US economy. Should the BoJ aggressively raise interest rates, the yen could strengthen further. However, robust US economic data could sustain the prospect of higher-for-longer interest rates, thereby limiting any USD/JPY decline. The 158.00 area serves as a critical support level, while a recovery above the 159.50–160.00 range would reopen the door for dollar appreciation. (arl)
Source: Newsmaker.id
