Japanese Yen weakens as Fed rate hike looms

On Tuesday, the USD/JPY exchange rate climbed to approximately 154.55 in the early Asian session. The US Dollar strengthened against the Japanese Yen following traders' increased expectations of a US interest rate hike in September. The US Federal Reserve's decision on interest rates will be a major focus later on Wednesday. The US Consumer Price Index rose in August, and a key measure of underlying inflation showed its largest gains in four months.

This data reinforced the expectation of a US rate hike, causing the US Greenback to rise against the Yen. Money markets indicated roughly a 92.4% chance of a rate hike, up from around 60% a week ago. MUFG senior currency analyst Lee Hardman noted that the US dollar had strengthened modestly at the start of the week due to growing expectations of Fed policy tightening.

The Bank of Japan is also expected to raise interest rates at its September meeting. BoJ Governor Kazuo Ueda's speech will be closely watched for hints on future rate hikes and the extent of the central bank's tightening. Analysts at DBS reported that speculative positioning has shifted favorably towards the yen, with traders unwinding short JPY positions after July's US-Japan currency intervention and changing expectations toward further Bank of Japan tightening.

The technical analysis shows USD/JPY holding below key moving averages, indicating a bearish near-term bias, despite a recent rebound. The next resistance level is near 157.15, with the 100-day moving average around 159.58 as a stronger cap before the upper Bollinger band at 162.05. Support is at the lower Bollinger band around 152.25, and a break below this level could open the way for deeper yen strength.