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Key Takeaways:
*Governor Ueda’s remarks at Jackson Hole boosted expectations of a potential rate hike, citing broadening wage growth and a tightening labor market.
*Rising long-term bond yields above 1.620% are adding to the yen’s appeal as traders anticipate a hawkish policy shift.
*The upcoming BoJ Core CPI on August 26 will be pivotal in shaping market sentiment and guiding the yen’s near-term trajectory.
Market Summary:
The Japanese yen is positioned to regain strength in the final week of August, reversing its recent bearish trend following notably hawkish remarks from Bank of Japan Governor Kazuo Ueda at the Jackson Hole Economic Symposium. In a significant shift in tone, Ueda emphasized that robust wage growth—a critical factor for sustainable inflation—is broadening beyond major corporations to small and medium-sized enterprises, a development he expects to accelerate amid the tightest labor market in decades.
This acknowledgment, supported by three consecutive years of substantial wage gains during the spring shunto negotiations, has materially increased market expectations that the BoJ is preparing to normalize monetary policy. Interest rate futures now reflect heightened speculation of an imminent rate hike, with the central bank’s September 19 meeting emerging as a key focal point for investors repositioning for a more hawkish policy outlook.
Adding fundamental support to the currency, Japanese government bond yields have surged, with the 10-year JGB yield breaking above 1.62%—approaching multi-year highs—thus enhancing the yen’s relative yield appeal amid a global shift in rate expectations.
Market participants will closely monitor the release of the BoJ’s preferred inflation gauge, the Core CPI reading due on August 26, for further confirmation of persistent price pressures. A firm print is likely to reinforce hawkish policy bets and provide additional momentum for the yen, while a softer reading could temper the pace of its recovery. Should incoming data continue to support the case for policy tightening, the yen may extend its rebound, particularly if supported by a broader softening in the U.S. dollar.
Technical Analysis
The GBP/JPY pair is trading near recent peak levels, approaching the significant psychological and technical resistance zone around 200.00. Despite testing these elevated ranges, the pair is exhibiting signs of fading bullish momentum, increasing the potential for a near-term technical pullback.
The pair’s price action has been characterized by instability within its recent consolidation range. After briefly dipping below this range—a signal of emerging selling pressure—it managed to recover; however, its failure to sustain itself firmly within the upper bounds of the range suggests underlying bearish momentum may be limiting further gains.
Momentum indicators reflect this market indecision. The Relative Strength Index (RSI) is hovering near its midline, indicating a neutral near-term bias with no clear overbought or oversold conditions. Similarly, the Moving Average Convergence Divergence (MACD) is fluctuating near the zero line, failing to provide a strong directional signal and further supporting a neutral to cautiously bearish near-term outlook.
Resistance Level: 199.65, 201.30
Support Levels: 198.25, 197.00
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