The dollar-yen pair trades 159.29 to 159.38 through the European session Thursday, up 0.04% and locked inside one of the tightest ranges of the month, with the 20-day exponential moving average at 159.47 acting as a hard cap on every attempt higher.
Central Bank Events Loom
The pair has now spent four sessions compressed between roughly 158.90 and 159.50 while two central bank events sit directly in front of it.
Bank of Japan Deputy Governor Ryozo Himino addressed business leaders in Saitama at 10:30 JST this morning, in a speech markets treated as the first genuine test of September rate hike pricing.
Himino told the audience in Saitama that the Bank of Japan should keep raising rates and adjust the degree of accommodation, and that the board must be more mindful of upside price risks than ever before.
His most quotable line was direct: if underlying inflation deviates upward to a level above the price stability target of 2%, that would have an adverse impact on the economy.
The currency held at 159.29 per dollar, largely unchanged, because Himino did not rule out a September hike but stopped short of explicitly signalling one.
Markets currently price around an 87% chance of a 25 basis point hike at the September meeting, taking the policy rate from 1.00% to 1.25%.
The rate differential between the US and Japan is 262.5 basis points, with the Federal Reserve target range sitting at 3.50% to 3.75% and the Bank of Japan policy rate at 1.00%.
A September BOJ hike to 1.25% against a Fed hold narrows that to 237.5 basis points — a 9.5% compression in the carry advantage.
Historically, every 100 basis points of compression has correlated with a five to eight yen move in USD/JPY.
Wednesday’s Personal Income and Outlays release showed the July PCE price index accelerating to 0.2% month over month against a 0.1% consensus, with the annual rate holding at 3.7% versus 3.6% expected.
Initial jobless claims dropped to 203,000, below a 209,000 consensus and below the 206,000 recorded the prior week.
The dollar index reflects it, hovering near 99.15 after extending Wednesday’s gains.
Fed Chair Kevin Warsh delivers his first Jackson Hole keynote at 10:00 a.m. ET, with the Kansas City Fed hosting the symposium from August 27 to 29.
Fed Chair Warsh Speaks
Investors are looking for a clearer steer on whether the Fed still sees another rate increase as necessary.
The asymmetry that matters for USD/JPY: if Warsh provides no strong steer toward a September hike, US front-end rates soften, and that combined with strong BOJ hike expectations provides impetus for a further decline in the pair.
Options pricing reflects the event risk, with one-week USD/JPY implied volatility typically rising 15% to 20% ahead of this symposium.
The event is significant.
It will be closely watched.
The Kansas City Fed is hosting the symposium.
Warsh’s speech is highly anticipated.
The dollar-yen pair’s movement will depend on various factors, including the speeches and economic data.
The Bank of Japan and the Federal Reserve have different policy rates.
The rate differential affects the currency pair.
Himino’s speech did not provide a clear indication of a September hike.
The market is waiting for Warsh’s speech.
The dollar index is near 99.15.
The Personal Income and Outlays release showed an acceleration in the PCE price index.
Initial jobless claims dropped to 203,000.
Kansas City Fed Symposium
The Kansas City Fed’s symposium will last from August 27 to 29.
Warsh will deliver his keynote at 10:00 a.m. ET.
The event risk is reflected in options pricing.
The one-week USD/JPY implied volatility typically rises ahead of the symposium.
The dollar-yen pair’s movement is affected by various factors.
The Bank of Japan and the Federal Reserve have different monetary policies.
The rate differential between the two countries is significant.
Himino’s speech was closely watched by markets.
Warsh’s speech is highly anticipated by investors.
The dollar index is an important indicator of the US economy.
The Personal Income and Outlays release provides valuable insights into the economy.
Initial jobless claims are an important indicator of the labor market.
The Kansas City Fed’s symposium is a significant event in the financial calendar.
Market Awaits Breakout
Warsh’s keynote will be closely watched by investors and analysts.
The event risk associated with the symposium is reflected in options pricing.
The one-week USD/JPY implied volatility is an important indicator of market sentiment.
The dollar-yen pair has been trading in a tight range, with the 20-day exponential moving average acting as a hard cap on every attempt higher, and the technical structure is layered and tight, with the 200-day moving average at 158.33, the 100-day at 160.00, and the 25-day at 160.24, which suggests that the pair is due for a breakout.
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