USD/JPY is coming up against a resistance level at 149.70, which is near its 300-day and 20-day moving averages. The currency pair recovered to 149.30 after its significant sell-off from 161.70 to 141.70 from July 11 to August 5. Despite its 0.4% rise on better-than-expected US data overnight, the DXY Index has been consolidating in a 102.2-103.6 range after hitting the year’s low of 102.16 on August 5. Next week, two events will affirm that the Bank of Japan has not abandoned its goal to normalize monetary policy and that the Fed is still on track to reduce interest rates at its pace through 2025.
On August 23, Japan’s parliament will hold a special session regarding the Bank of Japan’s monetary policy decisions on July 31. The session was called by senior officials from the ruling and opposition parties one day before Prime Minister Fumio Kishida’s announcement not to contest in the Liberal Democrat Party leadership elections in September. Lawmakers are seeking an explanation from BOJ Governor Kazuo Ueda regarding the market volatility that followed the BOJ’s surprise decision to hike interest rate hikes.
Ueda should defend the decision by citing the weak JPY and rising national CPI ex food inflation to 2.6% YoY in June from 2.2% in April. On August 23, consensus expects the significant inflation gauge to increase to 2.7% in July. Additionally, real GDP growth rebounded to an annualized 3.1% QoQ sa in 2Q24 vs. a 2.3% contraction in 1Q24. More importantly, private consumption growth expanded by 1% QoQ sa, following four quarters of negative growth. Hence, Ueda should stand by the BOJ’s plan to raise rates again if the median forecasts set out on July 31 are met or exceeded. Together with Finance Minister Shunichi Suzuki, Ueda will likely uphold the BOJ’s independence in conducting monetary policy regardless of who the LDP picks as Japan’s new prime minister in September. 
The Kansas City Fed will hold its annual Jackson Hole Symposium on August 22-24. Participants will reassess the effectiveness and transmission of monetary policy. Fed Chair Jerome Powell should affirm that the restrictive monetary policy was working as intended to bring down inflation by cooling the US economy and labour market. In turn, the Fed’s main priority is no longer solely price stability but also ensuring full employment under its dual mandate. Hence, the Fed has scope to reduce top-level restriction with a 25 bps rate cut at the FOMC meeting on September 18 on a soft landing in the US economy. Fed officials have pushed back the market’s expectation for a larger 50 bps cut on US recession fears. The recent upside surprises in US data affirmed the Fed’s belief that markets overreacted to one month’s softer-than-expected job data. For example, initial jobless claims fell a second week to 277k, its lowest level since the first week of July. Advance retail sales increased by 1% MoM in July after a 0.23% contraction in June. If the University of Michigan reports a stronger increase in its August consumer sentiment index (66.9 consensus vs. 66.4 previous) today, it should further allay worries about the US consumer.
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