The Japanese Yen (JPY) is trading within a narrow range against the US Dollar (USD) during Wednesday’s Asian session, having stalled its recovery from a low not seen since early August. The JPY’s struggles can be attributed to uncertainty surrounding the Bank of Japan‘s (BoJ) plans for interest rate hikes, compounded by disappointing Core Machinery Orders data for August.
Despite these challenges, a shift in global risk sentiment, indicated by declining equity markets, may provide some support for the safe-haven JPY, especially amid ongoing geopolitical tensions. Additionally, a slight dip in the USD could help limit significant upward movement in the USD/JPY pair. However, expectations for smaller rate cuts by the Federal Reserve (Fed) suggest that the prevailing trend for the pair may lean upward.
Daily Digest: Japanese Yen Undermined by Multiple Factors
The Japanese Yen is struggling to build on its recent recovery against the US Dollar after hitting its lowest level since early August. Doubts regarding the timing of the BoJ’s next interest rate increase are causing investor caution. A dovish shift in tone from BoJ Governor Kazuo Ueda and surprising opposition to further rate hikes from Prime Minister Shigeru Ishiba have heightened uncertainty about Japan’s monetary policy.
Recent government data revealed that Japan’s Core Machinery Orders fell for the second consecutive month, dropping by 1.9% in August. This decline significantly missed expectations and signals a potential deterioration in demand. Since manufacturing accounts for approximately 15% of Japan’s workforce, weaker orders could negatively impact the labor market, leading to slower wage growth and reduced consumer spending, complicating the BoJ’s rate-hike strategy.
In response to economic conditions, Japan’s forthcoming stimulus package is expected to exceed last year’s measures, which were financed with an extra budget of 13 trillion yen (approximately $87 billion).
Meanwhile, the US Dollar remains strong, consolidating near its highest level since August 8. This strength is supported by growing expectations for a more measured approach to policy easing by the Federal Reserve and forecasts for a standard 25-basis-point rate cut in November. San Francisco Fed President Mary Daly remarked that the central bank has made substantial progress in curbing inflation and anticipates one or two additional rate cuts this year if economic projections are met. Similarly, Atlanta Fed President Raphael Bostic indicated that he does not foresee strong signs of an imminent recession, citing the US economy’s continued resilience and a return of inflation to 2%.
In international relations, the Biden administration has warned Israel of potential repercussions, including the suspension of US weapons transfers, if it does not take immediate action to allow more humanitarian aid into Gaza.
Technical Outlook: USD/JPY Remains Bullish
From a technical standpoint, further declines in the USD/JPY pair are likely to find solid support in the 148.60-148.55 range. However, a sustained downward movement could expose the pair to additional weakness below the 148.00 mark, potentially testing last week’s swing low around 147.35. A decisive break below 147.00 would indicate that the recent upward trend may have peaked, paving the way for more significant losses.
Conversely, the psychological resistance at the 150.00 mark serves as an immediate barrier for the USD/JPY pair. A move above this level could accelerate gains toward the August monthly swing high, estimated between 150.85 and 150.90. Continued buying momentum past the 151.00 level could provide a fresh catalyst for bullish traders, driving prices towards the 152.00 area and eventually the 152.65-152.70 range.
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