The Japanese Yen (JPY) gained ground for the second consecutive day against the US Dollar (USD), recovering from its lowest point since July 31, around the 153.20 region reached earlier this week. The recent verbal intervention by Japanese authorities has been a significant factor in providing support to the Yen. In contrast, USD bulls remained cautious amid a slight decline in US Treasury bond yields, contributing to the softer tone of the USD/JPY pair.
However, skepticism about potential interest rate hikes by the Bank of Japan (BoJ) in 2024, compounded by election-related uncertainty and a decrease in Tokyo’s core inflation rate below the 2% target, could limit any further appreciation of the Yen. Moreover, the prevailing positive risk sentiment suggests caution before making aggressive bullish moves on the safe-haven JPY. Expectations of smaller rate cuts by the Federal Reserve (Fed) may also lend support to the Greenback, thereby restricting losses for the USD/JPY pair.
In a recent report, the Statistics Bureau of Japan indicated that the headline Tokyo Consumer Price Index (CPI) rose by 1.8% year-on-year in October, down from 2.2% in the previous month. Core CPI, which excludes volatile fresh food prices, also increased by 1.8%, a slight decline from the 2% recorded in September but above market expectations of 1.7%. Additionally, a core measure that excludes both fresh food and energy prices rose from 1.6% in September to 1.8% in October, still falling short of the BoJ’s 2% target.
This data follows a private-sector survey indicating contractions in Japan’s manufacturing and services sectors for October, pointing to weak economic conditions and heightening doubts about the BoJ’s ability to raise interest rates this year. Economy Minister Ryosei Akazawa emphasized the importance of stable currency movements that reflect economic fundamentals, noting that a weak Yen has various negative impacts on the economy. Furthermore, Japan’s Vice Finance Minister for International Affairs, Atsushi Mimura, remarked earlier this month on the undesirability of excessive volatility in the foreign exchange market and confirmed that authorities are closely monitoring currency fluctuations.
The US Dollar has halted its previous day’s pullback from a three-month high, supported by expectations of less aggressive policy easing from the Federal Reserve, thus offering some support to the USD/JPY pair. Key US macroeconomic data—specifically Durable Goods Orders and the revised Michigan Consumer Sentiment Index—are anticipated to provide further direction as investors prepare for Japan’s upcoming election on Sunday.
Technical Outlook: Should the USD/JPY pair weaken below the 151.60-151.55 range, it could decline toward the 151.00 mark. Further declines may encounter significant support around the 150.65 confluence, which includes the 200-day Simple Moving Average (SMA) and the 50% Fibonacci retracement level from the July-September downturn. A decisive breach of this level would indicate that the recent rally, which began at the start of the month, has lost momentum, potentially shifting the bias in favor of bearish traders.
Conversely, if the USD/JPY pair surpasses the 152.00 level, it may extend its gains toward the 152.60-152.65 region. Continued buying momentum could enable the pair to reclaim the 153.00 round figure, which is closely watched alongside the 61.8% Fibonacci level around 153.20. A clear break above this threshold could pave the way for additional upward movement toward the 154.00 mark and the 154.30 supply zone.
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