The Japanese Yen (JPY) is finding it challenging to build on a modest intraday uptick against the US Dollar (USD), stalling its recovery from the lowest levels seen since July, around the 153.20 area earlier this week. Recent economic data released on Thursday revealed contractions in Japan’s manufacturing and services sectors for October, adding to the pressure on the Yen. Additionally, a decline in Tokyo’s core inflation rate below the Bank of Japan’s (BoJ) 2% target has tempered expectations for further rate hikes in 2024, contributing to the JPY’s struggles.
Economic and Political Factors Impacting the Yen
Political uncertainty is mounting ahead of Japan’s general election on Sunday, and a generally positive risk sentiment is undermining demand for the safe-haven JPY. Meanwhile, a resurgence of dip-buying in the USD, fueled by expectations of less aggressive interest rate cuts by the Federal Reserve (Fed), has pushed the USD/JPY pair closer to the 152.00 mark as the European session approaches. However, recent verbal interventions by Japanese authorities are preventing JPY bears from placing fresh bets, which is capping the movement of the currency pair.
Daily Digest: Key Market Movers
The Statistics Bureau of Japan reported that the headline Tokyo Consumer Price Index (CPI) rose by 1.8% year-on-year in October, down from 2.2% in September.
Core CPI, which excludes volatile fresh food prices, also grew by 1.8% in October, a decrease from 2.0% in the previous month but slightly above market expectations of 1.7%.
A more specific core reading that excludes both fresh food and energy prices increased from 1.6% in September to 1.8% in October, still falling short of the BoJ’s 2% target.
These results follow a private-sector survey indicating contraction in business activity across Japan’s manufacturing and services sectors for October, highlighting the underlying weakness in the economy.
Such economic indicators raise doubts about the BoJ’s ability to implement further interest rate hikes this year, contributing to downward pressure on the Yen.
Comments from Japanese officials have emphasized the need for stable currency movements. Japan’s Economy Minister Ryosei Akazawa stated that it is vital for currencies to move in a way that reflects economic fundamentals, while Vice Finance Minister Atsushi Mimura has indicated that excessive volatility in foreign exchange markets is undesirable, with authorities closely monitoring the situation.
The USD has halted its previous day’s pullback from a three-month high, bolstered by bets for a less aggressive policy easing from the Fed, which supports the USD/JPY pair. Upcoming US macroeconomic data, including Durable Goods Orders and the revised Michigan Consumer Sentiment Index, may provide further impetus as investors await the results of Japan’s elections.
Technical Outlook
From a technical perspective, the USD/JPY pair shows some resilience below the mid-151.00s, indicating intact bullish potential. Should the pair dip below the 151.60-151.55 area, it could slide toward the 151.00 mark, where significant support is likely around the 150.65 confluence breakpoint—this level comprises the 200-day Simple Moving Average (SMA) and the 50% Fibonacci retracement level of the July-September decline. A decisive break below this support could signal that the recent bullish rally has lost momentum, shifting the bias in favor of bearish traders.
Conversely, if momentum pushes beyond the 152.00 mark, it could extend further towards the 152.60-152.65 region. Continued buying could enable the USD/JPY pair to reclaim the 153.00 round figure, followed closely by the 61.8% Fibonacci level near the 153.20 area. A breakthrough above this level would open the pathway for additional gains towards the 154.00 mark and the subsequent 154.30 supply zone.
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