Japanese Yen Surrenders Modest Intraday Gains Against USD USD/JPY Retakes 148.00
The Japanese Yen (JPY) has struggled to maintain the overnight recovery momentum from a two-month low against the US Dollar (USD), allowing the USD/JPY pair to recover and retake the 148.00 level. The uncertainty surrounding the Bank of Japan’s (BoJ) interest rate hikes and the aggressive monetary policy stance of the US Federal Reserve (Fed) remain key drivers influencing the currency pair. This article breaks down the factors behind the recent movements of the JPY and USD/JPY pair, providing a detailed outlook for traders.
BoJ Interest Rate Hike Uncertainty Caps Yen’s Gains
One of the significant factors limiting the Japanese Yen’s recovery is the uncertainty around the BoJ’s future rate hike plans. Despite the Yen’s initial uptick during the Asian trading session, the JPY bulls couldn’t sustain gains due to diminishing expectations for a BoJ rate hike in 2024. In contrast, the Fed’s aggressive monetary policy approach continues to support the US Dollar, adding pressure on the Yen.
Moreover, Japan’s Prime Minister Shigeru Ishiba recently stated that the country is not in an environment where further rate hikes are feasible. This raised doubts over the BoJ’s ability to tighten its monetary policy further, contributing to the JPY’s weakness. The uncertainty around Japan’s general elections on October 27 further compounds the Yen’s struggles.
USD/JPY Daily Price Chart
Source: TradingView, prepared by Richard Miles
Speculations of Japanese Government Intervention
While the outlook for the Yen remains somewhat bearish, there are growing speculations that the Japanese government may intervene in the currency markets to support the domestic currency. Japan’s Vice Finance Minister for International Affairs, Atsushi Mimura, warned against speculative moves in the foreign exchange market, fueling rumors that the government might step in to protect the Yen from further depreciation.
Adding to these concerns, Japan’s newly appointed Finance Minister, Katsunobu Kato, mentioned that the government is closely monitoring rapid currency movements that could impact the economy. If needed, Japan will take action to stabilize the Yen, which could stall the USD/JPY pair’s upward movement in the near term.
Geopolitical Tensions Boost Safe-Haven Demand for JPY
The escalating geopolitical tensions in the Middle East have also provided some support to the safe-haven Japanese Yen. Amid fears that the conflict could spread, safe-haven flows toward the Yen have increased, which helps prevent aggressive JPY selling. The latest developments include Hezbollah firing rockets at Israel’s port city of Haifa and Israel retaliating by bombing buildings in southern Beirut. The potential for this conflict to expand has kept risk sentiment cautious, benefiting the Yen as investors seek safety.
However, while geopolitical concerns lend some support to the Yen, they have not been strong enough to significantly reverse the JPY’s losses against the USD. Traders remain focused on central bank policies, particularly the BoJ’s rate hike uncertainty and the Fed’s hawkish stance, which keeps the USD/JPY pair supported above the 148.00 level.
China’s Economic Slowdown Adds to Yen’s Struggles
China’s economic woes have further complicated the picture for the Japanese Yen. China’s National Development and Reform Commission (NDRC) recently warned that downward pressure on the Chinese economy is increasing, dampening investor appetite for riskier assets. This has added to global risk aversion, which could have normally supported safe-haven currencies like the Yen. However, with domestic issues such as BoJ’s monetary policy uncertainty and political risks in Japan, the Yen has not fully capitalized on these external factors.
FOMC Minutes and US Inflation Data Awaited
Traders are now awaiting crucial data releases from the US, including the Federal Open Market Committee (FOMC) meeting minutes, set to be released on Wednesday, followed by the US inflation data – specifically the Consumer Price Index (CPI) and Producer Price Index (PPI) figures on Thursday and Friday, respectively. These reports could provide further clarity on the Fed’s policy path, influencing the USD/JPY pair’s direction.
A more aggressive policy stance from the Fed, supported by strong US economic data, could continue to elevate the USD, putting additional pressure on the Yen. Conversely, weaker-than-expected inflation data could temper expectations for further Fed tightening, offering some respite to the JPY.
Technical Outlook: USD/JPY Primed for Further Gains
From a technical perspective, the USD/JPY pair appears poised for further appreciation. Last week’s break above the 50-day Simple Moving Average (SMA) for the first time since mid-July, along with a move beyond the 38.2% Fibonacci retracement level of the July-September downtrend, are seen as bullish triggers.
The daily chart oscillators are gaining positive traction, indicating that the path of least resistance for the USD/JPY pair is to the upside. Any pullback might be viewed as a buying opportunity, with strong support anticipated near the 147.00 level, which now serves as a pivotal point for the pair.
Key Resistance Levels for USD/JPY
On the upside, a sustained move above the 148.00 mark could attract further technical buying, propelling the USD/JPY pair toward the next resistance zone at 148.70. If the pair manages to break above the weekly top near the 149.10-149.15 region, it could reinforce the bullish outlook, setting the stage for a move toward the psychological 150.00 mark.
Cautious Optimism for USD/JPY Bulls
In conclusion, while the Japanese Yen has surrendered modest gains against the US Dollar, factors such as BoJ rate hike uncertainty, geopolitical tensions, and potential government intervention remain in play. Traders are likely to remain cautious ahead of key US data releases later this week. From a technical standpoint, the USD/JPY pair appears set for further gains, with resistance levels at 148.70 and 149.15 in focus. However, any downside for the JPY might be cushioned by geopolitical risks and potential intervention from Japanese authorities.
