The Japanese Yen (JPY) surrendered modest intraday gains against the US Dollar (USD) on Thursday, drifting back towards its lowest level since early August reached earlier this week. The decline in Japan’s exports during September, the first drop in ten months, raised concerns about weakening global demand. This situation is further complicated by Japanese Prime Minister Shigeru Ishiba’s unexpected opposition to further interest rate hikes, which undermines the Bank of Japan‘s (BoJ) efforts to exit its long-standing ultra-easy monetary policy.
Additionally, a generally positive sentiment in the equity markets has created headwinds for the safe-haven JPY. In contrast, the US Dollar remains firm near a two-month high amid expectations that the Federal Reserve (Fed) will implement modest rate cuts over the next year. This scenario keeps the yield on the benchmark 10-year US government bond above the 4% threshold, further pressuring the low-yielding JPY and lifting the USD/JPY pair above the 149.50-149.55 region.
Market Overview: Yen Vulnerable Amid Diminished Rate Hike Hopes
According to a Reuters poll, a slight majority of economists now believe that the BoJ will refrain from raising interest rates again this year due to uncertainty surrounding the new political leadership’s monetary policy preferences. Data released by Japan’s Ministry of Finance showed that total exports dropped by 1.7% in September compared to a revised 5.5% increase the previous month, falling short of consensus estimates.
The decrease in exports can be attributed to soft demand from China—Japan’s largest trading partner—and slowing growth in the US. Additionally, the recent appreciation of the JPY following the BoJ’s unexpected interest rate hike in late July has further dampened export values. This backdrop could complicate the BoJ’s rate-hike plans and limit any significant appreciation for the yen, though persistent geopolitical risks from ongoing conflicts in the Middle East may offer some support.
The United Nations reported that Israeli forces fired at its peacekeeping position in southern Lebanon, injuring over a dozen troops. Reports indicate that Israel is prepared for a counterstrike in response to Iran’s October 1 attack, heightening risks of escalating tensions and a broader regional conflict.
The US Dollar surged to its highest level since early August on Wednesday, driven by expectations for a less aggressive easing of monetary policy by the Federal Reserve and growing speculation for a 25-basis-point rate cut at the November meeting. The yield on the benchmark 10-year US government bond dropped to a one-week low on Wednesday but defended the 4.0% threshold, favoring USD bulls and providing support for the USD/JPY pair.
Traders are now focused on the US economic docket, which includes the release of monthly Retail Sales, weekly Initial Jobless Claims, and the Philadelphia Fed Manufacturing Index, all of which could provide further impetus during the North American session.
Technical Outlook: USD/JPY Poised for Potential Breakout Above 150.00
From a technical perspective, the USD/JPY pair has been trading within a familiar range since the beginning of the week. Following a recent rise from a 14-month low in September, this phase may be classified as bullish consolidation. Oscillators on the daily chart remain in positive territory and are not yet in the overbought zone, supporting the potential for an eventual upside breakout.
However, traders may want to wait for a sustained move above the psychological 150.00 mark before placing fresh bullish bets. Should the pair successfully clear this barrier, it could accelerate toward the August monthly swing high around the 150.85-150.90 region. A further increase past the 151.00 round figure would likely serve as a new trigger for bullish traders, paving the way for additional near-term appreciation.
On the downside, the 149.00 mark serves as the lower boundary of the short-term trading range and may continue to protect the immediate downside. A convincing break below this level could lead the USD/JPY pair toward the next relevant support near the 148.55 region, en route to the 148.00 round figure and last week’s swing low around 147.35-147.30. Should the pair decisively breach the 147.00 mark, it could indicate that the recent upward movement has exhausted itself, prompting aggressive technical selling.
Related Topics:
