The Japanese Yen (JPY) is gaining traction during Friday’s Asian session, reversing some of the losses it experienced against the U.S. Dollar (USD), which hit its lowest level since early August. Key factors supporting the JPY include verbal intervention from Japanese officials and stronger domestic inflation data, which may provide the Bank of Japan (BoJ) with justification to raise interest rates.
A modest pullback in the U.S. Dollar from a two-and-a-half-month high is also exerting downward pressure on the USD/JPY pair. However, market sentiment remains cautious, as many believe the BoJ will refrain from raising rates due to signs of easing inflation and the upcoming general election on October 27. Additionally, expectations of smaller rate cuts by the Federal Reserve (Fed) may limit losses for the pair.
Japanese Vice Finance Minister for International Affairs Atsushi Mimura stated that recent fluctuations in the Yen are “somewhat rapid and one-sided,” highlighting the undesirability of excess volatility in the foreign exchange market. A government spokesperson added that stable currency movements, reflecting economic fundamentals, are crucial, emphasizing the government’s close monitoring of currency fluctuations.
Recent government data indicated that Japan’s headline Consumer Price Index (CPI) slowed to a 2.5% year-on-year rate in September, while Core CPI, excluding volatile food items, also eased from a ten-month high. This, combined with unexpected opposition from Prime Minister Shigeru Ishiba regarding further rate hikes, raises doubts about the BoJ’s capacity for additional increases amid easing inflationary pressures.
In the broader context, the markets showed little reaction to Chinese macroeconomic data, which revealed a 0.9% quarterly expansion and an annual growth rate of 4.6%, along with strong Retail Sales and Industrial Production figures. Positive U.S. economic data on Thursday supported expectations for a less aggressive Fed easing, keeping U.S. Treasury yields elevated and bolstering the Dollar.
The U.S. Dollar Index (DXY), which measures the Greenback against a basket of currencies, is near its highest level since early August, providing support for the USD/JPY pair and warranting caution for traders anticipating deeper losses.
Looking ahead, U.S. housing market data, including Building Permits and Housing Starts, along with Fed Governor Christopher Waller’s speech later in the North American session, may offer short-term trading opportunities.
From a technical standpoint, the recent breakout above the 150.00 psychological level could signal bullish momentum. Oscillators on the daily chart remain comfortably in positive territory, suggesting the USD/JPY pair’s path of least resistance is upward. Any dips toward 149.20 may be viewed as buying opportunities, with solid support expected in that area.
If the pair moves below 149.00, it could accelerate a corrective decline toward the 148.60-148.55 range, ultimately targeting the 148.00 mark and last week’s swing low around 147.35-147.30, a critical pivot point for bearish traders. Conversely, momentum above the overnight high of around 150.30 could push the pair toward the August swing high of 150.85-150.90, with further buying beyond 151.00 potentially paving the way for gains toward 152.00.
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