The Japanese Yen (JPY) has reached its lowest level since late July against the U.S. Dollar (USD) on Tuesday, although fears of potential government intervention are limiting follow-through selling. Despite a modest dip in the USD, the USD/JPY pair struggles to maintain momentum above the 151.00 mark. Meaningful JPY appreciation appears unlikely due to uncertainty surrounding the Bank of Japan‘s (BoJ) rate-hike plans and the upcoming general election in Japan on October 27.
Concerns over the Federal Reserve’s less aggressive policy easing, coupled with potential increases in deficit spending following the November 5 U.S. presidential election, are supporting elevated U.S. Treasury bond yields. This backdrop may further inhibit any recovery in the lower-yielding JPY and help restrict any corrective slide in the USD, suggesting that the path of least resistance for USD/JPY remains upward. Traders are now looking to the speech by Philadelphia Fed President Patrick Harker for further direction.
Daily Digest: Yen Intervention Fears Limit Losses Amid Bearish Outlook
On Tuesday, the Japanese Yen attracted some buyers amid speculation of government intervention, particularly after falling below the critical 150.00 psychological level. Japan’s Vice Finance Minister for International Affairs, Atsushi Mimura, remarked last Friday that excessive volatility in the foreign exchange market is undesirable, and authorities are closely monitoring market movements.
BoJ Governor Kazuo Ueda indicated last week that the central bank is not in a hurry to raise interest rates and emphasized the importance of considering the economic implications of unstable markets and global risks. Additionally, dovish comments from Japanese Prime Minister Shigeru Ishiba raise uncertainty about the new political leadership’s stance on monetary policy, likely acting as a headwind for the JPY.
Conversely, the USD has surged to its highest level since early August, supported by growing expectations that the Federal Reserve will implement gradual rate cuts over the next year, bolstered by a resilient U.S. economy. Dallas Fed President Lorie Logan stated on Monday that she anticipates gradual rate cuts if economic conditions align with forecasts, while Minneapolis Fed President Neel Kashkari noted that investors should expect a modest pace of rate cuts, barring signs of rapid labor market deterioration.
Market speculation surrounding a potential victory for Donald Trump in the November 5 presidential election has contributed to fears of inflation-generating tariffs, leading to a selloff in U.S. government debt. The yield on the 2-year U.S. Treasury bond closed at its highest since August 19, while the benchmark 10-year Treasury yield reached levels not seen since July 26, further underpinning the USD.
Technical Outlook: USD/JPY Bulls Eye Sustained Strength Above 151.00
From a technical perspective, any downward movement for USD/JPY may find immediate support in the 150.30-150.25 range, ahead of the psychological level of 150.00. A convincing break below this level could expose the pair to further declines towards the 149.65-149.60 support zone and potentially to the 149.10-149.00 area. Continued selling pressure would suggest that the recent positive momentum has peaked, shifting the near-term bias toward bearish traders.
Conversely, bulls will be looking for sustained strength above the 151.00 mark before considering fresh positions. With oscillators on the daily chart remaining in positive territory, a successful breach of 151.00 could propel the USD/JPY pair towards the 151.60 area, eventually aiming to reclaim the 152.00 round figure. Momentum could extend further to the 152.65-152.70 region en route to the 153.00 mark.
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