The Japanese Yen (JPY) continues to gain ground against the US Dollar (USD) for the second consecutive day on Tuesday, although the momentum lacks strong bullish conviction. Recent comments from Japanese officials have heightened fears of potential government intervention, while escalating geopolitical tensions in the Middle East have bolstered the Yen’s appeal as a safe-haven asset. A slight decline in the USD has also contributed to downward pressure on the USD/JPY exchange rate.
Despite this, the likelihood of another interest rate hike by the Bank of Japan (BoJ) in 2024 appears to be diminishing, preventing JPY bulls from making aggressive moves. Simultaneously, investors are tempering their expectations for a more aggressive policy easing by the Federal Reserve (Fed), which is helping to limit USD losses and stabilize the USD/JPY pair ahead of the upcoming FOMC meeting minutes on Wednesday, followed by US inflation figures later in the week.
Japan’s Vice Finance Minister for International Affairs, Atsushi Mimura, cautioned against speculative activities in the foreign exchange market, intensifying speculation that the government may intervene to support the Yen. Newly appointed Finance Minister Katsunobu Kato echoed this sentiment, indicating that the government would closely monitor rapid currency fluctuations and take action if necessary.
The recent escalation of tensions in the Middle East, particularly with Hezbollah’s attacks on Israel and Israel’s retaliatory strikes in Lebanon, has driven safe-haven flows toward the JPY, pulling the USD/JPY pair down from its highest levels since August 16.
Moreover, comments from Japanese Prime Minister Shigeru Ishiba stating that the country is not in a position for further rate increases have raised doubts about the BoJ’s capacity to tighten monetary policy in the near future. Additionally, uncertainty surrounding Japan’s general elections on October 27 could present further challenges for the JPY, potentially supporting the USD/JPY pair amidst a short-term bullish sentiment for the USD.
In the US, Federal Reserve Chair Jerome Powell’s hawkish remarks, combined with a strong jobs report, have diminished expectations for aggressive policy easing, keeping the USD elevated near a multi-week peak. Traders are now awaiting the release of the FOMC minutes and key US inflation data, including consumer prices and the Producer Price Index (PPI).
From a technical standpoint, last week’s breakout above the 50-day Simple Moving Average (SMA) and beyond the 38.2% Fibonacci retracement level of the July-September decline have provided new bullish triggers. Daily chart oscillators are gaining positive momentum, indicating that the USD/JPY pair is likely to continue its upward trajectory. Any further declines may be viewed as buying opportunities, particularly near the 147.00 mark, which is now a critical support level.
Conversely, a sustained move above the 148.00 threshold could lead to technical buying, pushing the USD/JPY pair toward the 148.70 resistance zone and eventually the 149.00 psychological level. Continued buying past the weekly high around 149.10-149.15 would further strengthen the bullish outlook, allowing bulls to reclaim the 150.00 mark.
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