The Japanese Yen (JPY) continued to weaken against major currencies, with both the EUR/JPY and AUD/JPY crosses trading higher on Tuesday. EUR/JPY extended its winning streak for the fourth consecutive day, reaching around 184.80 during Asian trading hours after breaking above the 50-day Exponential Moving Average (EMA) at 184.52. The pair remains within a rising wedge pattern, which typically signals a potential bearish reversal, but currently maintains a constructive near-term bias as it holds above both the 50-period and nine-period EMAs. The 14-day Relative Strength Index (RSI) stands at 52.89, indicating steady but not overstretched upside momentum. Key resistance is noted at the upper boundary of the wedge at 186.10, with a potential path to retest the all-time peak of 187.95 if this level is breached. On the downside, a break below the confluence support zone could push the pair toward its eight-month low of 179.37, recorded on August 3 [1].
Similarly, AUD/JPY traded in positive territory around 113.40 during early European hours. The Yen's weakness against the Australian Dollar is attributed to mounting fiscal concerns and persistent inflationary pressures in Japan. Market participants are closely watching Prime Minister Sanae Takaichi’s proposal to cut the consumption tax on food to 1% for two years, a move that has raised concerns due to the lack of an alternative revenue source and doubts about its effectiveness in combating inflation. Elevated energy costs are also weighing on Japan’s oil-dependent economy and the Yen [2].
Expectations for a Bank of Japan (BoJ) rate hike at its September policy meeting have increased, with overnight index swaps pricing in about an 80% probability of a move by that month. According to DBS strategist Philip Wee, market odds for a September BoJ rate hike have surged to 81% from 21%, while expectations for a Federal Reserve hike have dropped to 32% from 72%. Wee suggests that JPY bears may be underestimating the impact of this shift in market-implied probabilities, especially as Prime Minister Takaichi faces growing pressure to stabilize the Yen [2].
Technical analysis for AUD/JPY shows a bullish near-term bias, with the pair holding above the 100-day simple moving average (SMA) and the Bollinger Bands middle line. The RSI (14) at 57.55 supports constructive momentum. Immediate support is at the 100-day SMA at 113.00, with resistance at the July 16 high of 113.88 and the July 27 high of 114.67. A daily close above the Bollinger upper band near 115.25 could signal further upside [2].
The Euro also showed relative strength against other major currencies, particularly the New Zealand Dollar, as indicated by the percentage change table. However, the EUR/JPY cross was only marginally stronger against the Yen, with a -0.08% change for EUR/JPY on the day [1].
CONCLUSION
The Japanese Yen's continued weakness against both the Euro and Australian Dollar is driven by domestic fiscal concerns, inflationary pressures, and shifting expectations for a Bank of Japan rate hike in September. While technical indicators for both EUR/JPY and AUD/JPY remain constructive, market participants are closely monitoring policy developments and upcoming economic data for further direction. The market impact is medium, with the potential for increased volatility if the BoJ signals a change in its policy stance.