Japanese Yen flattens against US Dollar in countdown to Jackson Hole Symposium

On Thursday, the Japanese Yen (JPY) remained relatively stable around 159.30 against the US Dollar (USD) during the European trading session. Market participants were focusing on the countdown to the Jackson Hole Symposium where Federal Reserve (Fed) Chairman Kevin Warsh was set to deliver his speech. His comments were anticipated to impact central banks' interest rate expectations and thus influence the US Dollar.

Strategists at OCBC pointed out market concerns about the Fed’s reaction function and the possibility that policymakers may prioritize factors other than inflation control. They believed that USD could find support if Warsh and other Fed officials reaffirmed their commitment to the 2% inflation target. At the time of writing, the US Dollar Index was holding onto its previous day's gains around 99.15.

Earlier in the week, the USD gained momentum following the release of the Personal Consumption Expenditure (PCE) Price Index for July which revealed persistent price pressures. US Treasury yields had risen after the Fed’s preferred inflation gauge delivered "mixed signals" for the month. The stronger PCE inflation (3.7% y/y) compared to expectations (3.6%) helped the US Dollar, as it kept alive hopes that the Federal Reserve might resume rate hikes.

In Tokyo, investors' attention was shifting towards the Bank of Japan’s (BoJ) September policy meeting, where a potential 25 basis points (bps) rate hike to 1.25% was expected. While markets began to reassess the BoJ's near-term policy path, strategists at Scotiabank noted that the central bank's tone would be crucial for investors, who were increasingly focused on the BoJ's outlook rather than the decision itself.

In the Reuters poll conducted in August 17-24, 57% of economists expected the BoJ to increase interest rates in September, a significant shift from the 5% expectation in the July poll. In the daily chart, USD/JPY was trading at 159.34, hovering just under the 20-day exponential moving average (EMA) at 159.47, which acted as a bearish resistance level.

The pair was holding near this dynamic resistance, bouncing back after its recent pullback. The Relative Strength Index (RSI) at 46.7 was below the 50 line, indicating fading downside momentum but not a bullish recovery signal. On the upside, immediate resistance was located at the 20-day EMA around 159.47, with a sustained break above this hurdle needed to ease current pressure and allow a retest of recent highs.

Downside risks were limited due to the absence of nearby mapped support levels, leaving the pair susceptible to further slippage if selling resumed.