USD/JPY: Fed, BoJ Divergence Could Fuel Reversal With Key Support at 146 in Focus

Forex

Summary:

Diverging Fed–BoJ policies pressure USD/JPY, with U.S. rate cuts likely and Japan eyeing hikes. Key support at 146 is in focus; a break could open the path toward 143 and 140.

In the last few days, investors received several important updates that affected the USD/JPY currency pair. The focus remains on central banks, both of which kept interest rates unchanged. But they are now moving in different directions — the Bank of Japan is expected to raise rates soon, while the Federal Reserve is likely to cut rates in September.

The biggest impact came from US labor market data. A downward revision in past job numbers made the data look worse than expected, which weakened the US dollar. As a result, selling pressure on USD/JPY has increased, and the recent upward move in the pair may be coming to an end.

Japan to See Another Rate Hike in October?

As expected, the Bank of Japan kept interest rates unchanged and continued its cautious monetary policy, mainly due to concerns about the trade war. However, that uncertainty has eased after Japan and the US agreed on the terms of their trade deal, which Governor Ueda highlighted in the BOJ’s statement.

Meanwhile, inflation remains above target. The bank raised its average core inflation forecast for the year from 2.2% to 2.7%. Policymakers also noted that inflation in food prices is likely to persist for a while, but they do not expect it to significantly affect core inflation.

USD/JPY: Fed, BoJ Divergence Could Fuel Reversal With Key Support at 146 in Focus_1

Meanwhile, across the Pacific, the Federal Reserve has also kept interest rates steady and offered no clear guidance on future changes. At the same time, weaker labor market data from the US has pushed the chances of a rate cut in September to above 90%.

USD/JPY: Fed, BoJ Divergence Could Fuel Reversal With Key Support at 146 in Focus_2

Before that, though, several key economic reports from the US are due, especially on inflation. So far, the data shows that the slowdown in inflation has started to lose momentum. If the upcoming numbers come in higher than expected, the Federal Reserve could find itself in a tough spot—balancing signs of a slowing economy with inflation that remains above its target. On top of this, political pressure on the Fed Chair and growing opposition at home could end up pushing the central bank closer to cutting rates.

USD/JPY Technical Analysis

Friday’s US labor market data triggered a sharp drop in the US dollar, pushing USDJPY lower. The next likely move for sellers is to test the local support zone near 146 yen per dollar.

USD/JPY: Fed, BoJ Divergence Could Fuel Reversal With Key Support at 146 in Focus_3

If sellers manage to break below 146, the next support levels to watch are 143 and 140 yen per dollar. On the upside, 151 remains a key resistance level that would challenge any bearish momentum.

source : investing

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Adam

Economic

President Donald Trump’s relentless calls for dramatic reductions in interest rates, along with his ability to make changes to the Federal Reserve’s leadership, is drawing more attention to the way monetary policy decisions are made — and the people who make them.

A close look at that group — barring additional surprise departures from the Fed — suggests the president probably won’t get the outsize rate cuts he wants in 2026.

Fed Governor Adriana Kugler announced last week she’ll resign on Aug. 8, five months before her term was set to run out. Trump said he expects to name a replacement in the coming days. Whomever he chooses will likely be in the running to lead the US central bank when Jerome Powell’s term as chair expires in May, and could set the tone for what the Trump administration wants from monetary policy.

But even if the new chair agrees with Trump that borrowing costs should be much lower, changing them will require a majority on the central bank’s Federal Open Market Committee. Former Fed officials and staffers say that means arguments must be based on the economy, not politics.

“Whoever is in that role as chair, their job is to build consensus among the other voters,” said Loretta Mester, former president of the Cleveland Fed. “And it’ll have to be a sound, economical rationale.”

The importance of building support for a decision was on display last month, when Fed officials voted 9-2 to leave their benchmark rate unchanged. Fed Governors Christopher Waller and Michelle Bowman — both Trump appointees — dissented in favor of a quarter-point cut. Waller and Bowman said the Fed should provide more support to a slowing labor market, but most officials, including Powell, remained wary of tariff-driven inflation.

Fed chiefs are traditionally given significant deference by other policymakers in pursuing consensus, so long as they have the committee’s respect.

“If the new chair is perceived as political or aligned with the administration, they may not be granted that trust immediately,” said Marc Giannoni, chief US economist at Barclays Capital and former research director at the Dallas Fed.

Fed Board

All 19 policymakers participate in discussions about the economy and monetary policy, but only 12 officials vote. The seven Fed governors in Washington always vote, along with the president of the New York Fed. The remaining four votes are rotated each year among the presidents of the 11 other regional Fed banks.

If Powell resigns from the board when his chairmanship ends in May 2026, as is customary, that will give Trump another opening to fill, in addition to Kugler’s seat. Powell’s term on the board doesn’t officially expire until 2028.

Replacing both Kugler and Powell would make four of seven governors Trump appointees. It’s not guaranteed that all would automatically take direction from the president, though it could give the new chair a head start, Fed watchers say.

“If you have four governors all lined up on one side, that gives the chair quite a bit of momentum to get his or her way,” William Dudley, a former president of the New York Fed, said Monday on Bloomberg TV. “But I think the Federal Reserve presidents are going to vote their conscience in terms of what’s right for the macroeconomy.” Dudley is a Bloomberg Opinion contributor.

While Trump has been calling for lower rates for months, Bowman and Waller backed holding rates steady — and voted in favor of such moves — through June. Waller, whose name has been floated as a potential successor for Powell, has also been a staunch defender of central bank independence.

The other members of the board — Governors Michael Barr, Lisa Cook and Vice Chair Philip Jefferson, are generally viewed as neutral voices on rates. All three were appointed by former president Joe Biden.

“They will be very focused on the fundamentals, and they could be a bit of resistance if the new members of the FOMC seem to be more influenced by political desire,” said Kathy Bostjancic, chief economist for Nationwide.

Regional Banks

Aside from New York Fed President John Williams, the regional presidents voting next year will be Cleveland’s Beth Hammack, Dallas Fed chief Lorie Logan, the Minneapolis Fed’s Neel Kashkari and Philadelphia’s Anna Paulson.

Williams, who is also vice chair of the FOMC, has often backed Powell and is viewed as a centrist. He said last week he would go into the September policy meeting with “very much an open mind” about lowering rates, and described the labor market as “still solid” after gradually cooling over the past year.

Hammack, who voted against a rate cut in December, only her third meeting as a policymaker, has shown cautiousness over inflation and a willingness to publicly disagree with her colleagues. She said Friday that while the jobs report was “disappointing,” she still had confidence in the Fed’s decision to keep rates steady last week and believes officials are further from their inflation goal than their employment target.

Logan took the helm at the Dallas Fed in 2022 after more than two decades on the markets desk at the New York Fed, where she oversaw management of the Fed’s balance sheet. She said in July that officials should hold rates steady for a while longer to bring inflation closer to the 2% target.

Kashkari, who previously worked for the Treasury Department under George W. Bush and Barack Obama, oversaw the Troubled Asset Relief Program (TARP) during the financial crisis. He said last week that the Fed is committed to making decisions based on the best data.

Paulson, who started in the role in July and will be voting as a policymaker for the first time next year, was previously the director of research at the Chicago Fed, where she worked since 2001. Her career as an economist will make her more prone to taking an analytical approach to policy decisions, said Mester.

“All four of the voters coming in are particularly attuned to financial markets and would be particularly sensitive to any indication that the Fed’s credibility is at risk,” said Julia Coronado, founder of the research firm MacroPolicy Perspectives and a former Fed economist.

Potential Divisions

Federal Reserve Dissents Dwindle | Recent years have seen fewer dissenting votes than in the past

Projections released in June showed 10 officials predicted at least two cuts in 2025. Those in favor of lowering rates this fall could grow after the July jobs report revealed a weaker labor market than previously thought. Additional deterioration could swing the committee in favor of more cuts.

Potential Divisions

source :Bloomberg

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Owen Li

Economic

Official economic data is finally catching up to the fact that Americans have been feeling lousy about the job market for months.

The U.S. economy added just 73,000 nonfarm jobs in July, according to the latest jobs report from the Bureau of Labor Statistics. That's below market expectations and the roughly 80,000 benchmark for a healthy economy to support the growing population, says Laura Ullrich, Indeed's director of economic research for North America.

A lot of economists are also paying attention to the latest report, which helps show a monthly picture of where jobs are growing and shrinking, because it downwardly revised its May and June numbers to show the economy added just 33,000 jobs over the two-month period, compared to earlier estimates of 291,000 jobs.

Following the release of Friday's jobs report, President Donald Trump fired BLS commissioner Erika McEntarfer, suggesting without evidence that the weaker-than-expected report had been "rigged" by federal workers bent on sabotaging the president.

Revisions are a normal part of the data collection process, and estimates move up or down to become more precise with additional payroll data up to several months after a report releases, Ullrich tells CNBC Make It.

But "these revisions took the prior two jobs report [in May and June] from a range where they looked like pretty healthy job reports to where they looked quite weak," Ullrich says.

The latest numbers confirm the U.S. economy is slowing sharply, experts say. Here's what else job seekers should know about the state of the labor market:

Health-care jobs are propping up job growth

At the beginning of the year, the labor market was primarily held up by jobs across three sectors: health care and social assistance, leisure and hospitality, and government hiring.

Leisure and hospitality job creation is down, driven in part by business pullback amid economic uncertainty, while government hiring is down following the Trump administration's work to slash the size of the federal government.

Meanwhile, health care and social assistance have accounted for 48.8% of total employment growth over the last year, despite making up just 14.6% of the economy, Ullrich says.

New jobs span nurses, nurses assistants, patient care techs, home health aides and other roles. "Hospitals employ just about everybody," Ullrich says.

Hospitals added 196,000 jobs over the last year, which is 3.5% growth and "pretty strong," Ullrich says. Home health care services grew by 56,900 jobs, or 3.2%, over the last year.

A majority, 78.6%, of employees in this subsector are women, meaning 35% of all employment growth in the U.S. over the past year has been among women in health care and social assistance, Ullrich says.

Experts have long predicted the strength around health-care jobs to take care of an aging Baby Boomer population.

"Growth in that sector has remained robust," Ullrich says.

Hiring in multiple high-growth sectors is sluggish

Other typically high-growth and high-paying sectors are shedding jobs, including professional and business services, manufacturing and government, which all lost more than 10,000 jobs each over the last month.

Some experts have dubbed the current environment a "white collar recession" among office workers. "Business and professional services added a ton of jobs in the post-pandemic period, but over the past year or so, it's been relatively soft," Ullrich says.

As for manufacturing, it's hard to say what combination of factors is keeping jobs down, whether it's new global tariffs, changing consumer habits, or overall economic uncertainty, among other things, Ullrich says.

Ullrich says the latest jobs numbers are just one more data point that add to a broader challenging economic picture, which could impact business plans and consumer spending.

"It's been clear through multiple sources of data, including this jobs report, that the economy is slowing down a bit, and so that can certainly impact sentiment," she says.

Another troubling sign: The number of people who've been unemployed for 27-plus weeks increased by 179,000 people to 1.8 million in July, according to BLS data. Long-term unemployed people make up roughly 1 in 4 people looking for a job right now.

Job postings are down on Indeed, Ullrich says, and economists have seen a disequilibrium in terms of what skills people have and what sectors are hiring.

Currently, "if you are somebody that's trying to find a job in manufacturing or business and professional services, it's likely a pretty tough job market right now," Ullrich says. "If you're graduating with a nursing degree, I feel pretty confident that there's someone out there looking to hire you."

Source: CNBC

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Adam

Stocks

Economic

Last week, fears over the US economy slowing more than initially thought took center focus as the major indexes experienced the worst single-day drop of the summer.

That was the headline takeaway from the busiest week of data releases slated for the summer of 2025.

But underneath the surface, there are still plenty of reasons to feel confident in the path higher for the S&P 500 (^GSPC), according to Wall Street strategists — a confidence that seemed to roar back on Monday as the S&P 500 jumped 1.5%.

Besides the dour jobs report, investors also learned that the S&P 500 is pacing for year-over-year earnings growth of 10.3%, well above the 5% expected entering the reporting period, per FactSet data.

On top of that, we heard Big Tech giants say they're set to spend another $364 billion in AI investments during 2026, and third quarter earnings estimates for the S&P 500 weren't slashed during the first month of the quarter for the first time in over a year.

In other words, while the US economic growth story is taking hits, the fundamental driver of the AI-driven bull market is absolutely cooking. That made Mike Wilson and the equity strategy team at Morgan Stanley declare "we’re buyers of pullbacks," and that the team is bullish over the next 12 months.

"While there's risk in the near-term, we are gaining confidence in our 12-month bullish view fueled by better earnings/cash flow growth," Wilson wrote. "The drivers include positive operating leverage, AI adoption, dollar weakness, cash tax savings from the [One Big Beautiful Bill], easy growth comparisons, and pent up demand for many sectors in the market."

BlackRock's Investment Institute, led by Jean Boivin, wrote in a weekly market commentary note that there is a clear "tug-of-war" between the economic drag of tariffs and US corporate resilience driven by AI.

They, too, are taking their signal from the latter.

"Questions remain about who will pay for tariffs," Boivin's team wrote. "Early signs indicate a mix of consumers and companies. We think US corporate strength could cushion the blow and stay overweight the AI theme and U.S. stocks."

In a research note summing up earnings reports seen from more than two-thirds of S&P 500 companies this quarter, Bank of America Securities head of US equity and quantitative strategy Savita Subramanian wrote that the "AI arms race is alive and well."

To Subramanian, the focus on AI growth continuing to inflect higher isn't all about tech stocks either. It could be a tailwind for a broadening of the stock market rally and support US economic growth.

"Increased power usage from AI and the physical build out of data centers should also lead to more demand for electrification, construction, utilities, commodities, etc, ultimately creating more jobs."

Source: finance.yahoo

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Adam

Commodity

A U.S. decision last week to exempt refined copper metal from import duties is in contrast to an earlier move to levy steep duties on aluminium, and highlights the central importance of electricity costs and the lobbying dynamics shaping U.S. policy.

The United States stunned the copper market with its decision to only tax imports of semi-finished products such as wire, tube and sheet. Copper prices on Comex are down more than 20% since the announcement on Wednesday.

Since June, aluminium metal shipped to the U.S., where smelters face higher electricity bills than copper producers, has attracted 50% tariffs.

Taxes on metal production are part of a broader U.S. effort to revive domestic smelting capacity and cut reliance on imports.

U.S. aluminium producer Century Aluminum has been vocal in its support of tariffs that it says are essential to protect what remains of the U.S. aluminium smelting industry.

"Century Aluminum Company applauds President Trump’s unwavering defence of the nation’s domestic production of critical metals by increasing aluminum tariffs to 50%," the company said in a June release.

The waiver for refined copper reflects its importance to U.S. manufacturing and the influence of the industry, including major producer Freeport-McMoRan, which earlier this year said a global trade war would undermine U.S. copper production.

"A global trade war could result in slower economic growth," Freeport said in a submission to a U.S. government request for comment on its investigation into copper import tariffs.

"Slower growth in the U.S. or globally would negatively impact copper prices, which could threaten the viability of the domestic copper industry due to its elevated cost structure."

The case for tariffs on U.S. aluminium imports includes the energy proportion of smelting costs in the United States. Macquarie's ballpark estimate for energy costs for producing primary aluminium and copper is 50% and 30% respectively.

"There is no economic case for building any greenfield aluminium smelting capacity without substantial intervention. Even then, intervention may not be sufficient," said Macquarie analyst Marcus Garvey.

Analysts say one major difficulty for potential investors in U.S. aluminium smelting capacity is getting long-term power purchase agreements at competitive prices, when power costs are higher in the U.S. compared with other producing countries such as United Arab Emirates, Bahrain and the world's biggest producer China.

The cost of electricity is the main reason why there are only four active U.S. aluminium smelters down from 23 in 1995.

According to U.S. Geological Survey, the United States produced 3.35 million metric tons of primary aluminium in 1995, 1.6 million tons in 2015 and 670,000 tons last year.

Source: Reuters

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Devin

Economic

Brazil is finalizing proposals to help companies mitigate the effects of steep US tariffs with debt extensions, cheaper credit and support for workers’ salaries, according to an official with knowledge of the plans.

The package is the cornerstone of President Luiz Inacio Lula da Silva’s efforts to counteract the 50% tariffs Donald Trump threatened to impose on Brazilian goods, and will target relief at sectors that weren’t among the nearly 700 exemptions the US leader outlined last week.

Lula’s government is waiting for the higher levies to take effect Wednesday to assess the overall impact on Brazilian companies, and has not yet finalized a cost estimate for the plans, the person said, requesting anonymity to discuss internal matters. Finance Minister Fernando Haddad said Tuesday that about 4% of Brazilian exports to the US will be affected by the tariffs.

While Haddad has said the tariff relief efforts will not fall outside fiscal rules, they will make it tougher for the government to reach its target of eliminating the primary budget deficit, excluding interest payments, this year. Moreover, the initiatives are likely to add to already-rising public debt levels that have generated investor concerns.

The Finance Ministry didn’t respond to a request for comment.

The program is set to include offers of credit for working capital through Brazil’s national development bank, known as BNDES, with the backing of an existing public guarantee fund, the official said.

The government simultaneously wants to help companies extend the timeline of loan repayments. It also wants to purchase some products from companies whose sales to the US are dented by tariffs. It plans to make improvements to export insurance programs, and in a bid to preserve jobs, temporarily help firms cover the cost of worker salaries, as Brazil did during the pandemic, according to the official.

The amount of aid companies receive is likely to be based on how much they sell to the US and the impact tariffs have on their business, the official said.

While it is still assessing those effects, Lula’s administration is likely to need to make additional contributions to the guarantee fund in order to support the cheaper credit initiative. Haddad’s team is currently determining whether it can use existing public money or if it will need to issue additional debt to bolster the fund, the official said.

It will also need to approve a resolution in Brazil’s National Monetary Council — made up of Haddad, Planning Minister Simone Tebet and central bank chief Gabriel Galipolo — to ensure that banks do not face penalties under prudential rules, according to the official.

Trump thrust Brazil into the center of his global trade war in July, when he threatened to impose the tariffs unless the country’s Supreme Court immediately dropped a case against former President Jair Bolsonaro, who is facing trial on coup attempt charges.

Lula’s government has sought to open talks with the US over the levies in order to “show them that there is no economic sense in these tariffs against Brazil,” Haddad said Monday, adding that he may soon speak with Treasury Secretary Scott Bessent.

Brazil’s Chamber on Foreign Trade also authorized the government to consult the World Trade Organization about the legality of Trump’s tariffs, Vice President Geraldo Alckmin told reporters Monday.

A lawsuit at the WTO is expected to be filed in the coming days, with the government planning to take action in the areas of intellectual property, patents and copyright.

Source: Bloomberg Europe

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Adam

Commodity

Sentiment among oil traders has turned bullish recently despite forecasts flagging sluggish demand growth and OPEC+’s latest decision to add more barrels to its combined production.

The reason for the change in sentiment was U.S. President Donald Trump’s threat to impose new sanctions on Russia unless it agreed to a quick ceasefire with Ukraine. Following the news, oil jumped to the highest in a month—despite those sluggish demand forecasts.

Brent crude began trading this week at over $69 per barrel, even after OPEC+ announced it would add another 547,000 barrels daily to its combined production next month. That was down from over $73 at the end of last week, when President Trump made his threat and, on top of that, slapped India with 25% tariffs plus an extra levy to punish India for importing Russian crude.

The reaction of oil traders to the news is kind of surprising, not least in light of the bearish demand projections by a number of prediction outlets, including the International Energy Agency and a number of investment banks. Yet this reaction is a fact, and it suggests that the hold of bearish demand forecasts over the market is not as strong as it used to be.

Institutional traders raised their bullish bets on Brent crude and West Texas Intermediate by close to 40,000 in the last week of July, Bloomberg reported on Friday. That was the sharpest increase in bullish positions since June, the publication added. In June, the surge in bullish bets came in response to the missile strike exchange between Israel and Iran, which ignited fears of a wider war in the Middle East.

The identical reaction of traders now suggests they are concerned about the security of Russian oil supply amid the U.S. president’s push to force a ceasefire on the warring parties in the Donbass. Earlier this month, President Trump issued a threat to impose 100% secondary tariffs on countries that buy Russian crude unless Russia agreed to a ceasefire with the Zelensky government. Russia’s exports average some 7 million barrels daily, which is a substantial chunk of total global exports. If Trump decides to enforce these sanctions, the world may swing into an oil deficit, ING commodity analysts predicted in mid-July. However, the story just got more complicated.

India said last week it has no plans to stop buying Russian crude, whatever the U.S. says. Reuters reported, citing unnamed government sources from New Delhi, that there were no immediate plans to suspend purchases of Russian crude despite the U.S. president’s threat of additional sanctions in the form of 100% tariffs.

“These are long-term oil contracts,” one of these told the publication. “It is not so simple to just stop buying overnight.” It is not about the contracts only, however. It seems relations between Washington and New Delhi have soured significantly in recent months, and the chief reason for this, according to a recent report by the Financial Times, is the fact that India buys so much Russian oil.

Secretary of State Marco Rubio called these purchases “a point of irritation” in bilateral relations and President Trump himself made a demonstrative gesture of sealing a trade deal with Pakistan and boasting about plans to jointly develop the country’s “massive” oil reserves while at the same time calling India’s economy “dead”, along with Russia’s.

Things between the U.S. and one of the world’s biggest oil importers are tense, then. In fact, they are so tense that the U.S. president appears willing to risk an oil price surge with secondary tariffs—and traders are positioning themselves for just such a surge. But it is not only India that is refusing to heed Trump’s orders. China has refused to stop buying Russian oil as well.

“China will always ensure its energy supply in ways that serve our national interests,” the foreign ministry in Beijing wrote on X last week after a two-day negotiations session with the U.S. in Sweden and after Trump issued the 100% secondary tariff threat. U.S. Treasury Secretary Scott Bessent commented that the “Chinese take their sovereignty very seriously,” adding that “We don’t want to impede on their sovereignty, so they would like to pay a 100% tariff,” as quoted by Australia’s ABC earlier today.

Yet going through with the 100% tariff threat would be counter-productive for Trump on two fronts: trade deals and cheap gas. A jump in global oil prices resulting from the deployment of the punitive tariffs would mean a jump in U.S. oil prices as well. Also, a punitive tariff of 100% on China will quite likely put an end to all progress made on a trade deal so far—and President Trump has made it clear he wants that trade deal.

The question now seems to be just how much he wants it, and whether he’s willing to risk higher oil prices and that deal to try and get Russia to agree to a ceasefire.