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The Japanese Yen strengthened following the Bank of Japan's decision to maintain its interest rate at 0.15%. Japan's Consumer Price Index rose to 3.0% in August, marking the highest level since October 2023. The US Dollar faced pressure as market expectations grew for future Federal Reserve rate cuts, with the 2024 median forecast revised downward. However, Fed Chair Jerome Powell emphasized a cautious approach to easing. Despite Japan's increasing trade deficit, the Yen continues to receive support, while the USD/JPY pair trends lower amid a weakening dollar and rising inflation in Japan.

Key Highlights

* The BoJ kept its interest rate steady at 0.15%.

* Japan's CPI hit a high of 3.0% YoY in August 2024.

* The US Dollar weakened as markets anticipate Fed rate cuts.

* The USD/JPY pair dropped toward the 142.00 level.

* Japan's trade deficit increased in August, driven by lower-than-expected exports.

The Japanese Yen showed notable strength against the US Dollar following the Bank of Japan’s decision to maintain its interest rate at 0.15% during Friday’s policy meeting. Japan’s inflation data also provided significant support, with the Consumer Price Index (CPI) rising to 3.0% year-on-year in August, the highest reading since October 2023. Core National CPI, excluding fresh food, similarly increased to 2.8%, marking the fourth consecutive monthly rise and aligning with market expectations.

Meanwhile, the US Dollar faces headwinds, as market expectations build for additional Federal Reserve rate cuts by the end of 2024. The latest Fed projections suggest a lower median rate for 2024, fueling speculation of further easing. However, Fed Chair Jerome Powell struck a cautious tone, stating that large rate cuts should not be expected imminently, despite the ongoing decline in inflation.

In other news, Japan’s trade deficit widened to ¥695.30 billion in August, falling short of market expectations. Despite this, the Yen remains bolstered by broader economic conditions.

On the technical side, the USD/JPY pair has been trending lower, falling toward the 142.00 level as the Yen benefits from inflation data and the weakening US Dollar. Analysts expect further downside risks, with key support levels around 139.58 and 137.50, while resistance remains near the 143.56 level.

Finally

The Japanese Yen continues to gain strength as the Bank of Japan maintains its rate policy, while inflation rises and the US Dollar weakens further.

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