The Japanese Yen (JPY) is struggling to maintain its modest gains against the US Dollar (USD), slipping toward the lower end of its daily trading range during the early European session. Opposition from Yuichiro Tamaki, leader of Japan’s Democratic Party for the People (DPP), against further interest rate hikes by the Bank of Japan (BoJ) adds to the pressure on the lower-yielding Yen. Additionally, a bullish sentiment in equity markets and rising US Treasury bond yields are further challenging the Yen’s stability.
The USD/JPY pair saw a rebound of nearly 50 pips from its daily low around 152.75, aided by renewed US Dollar buying. Meanwhile, Japan’s Finance Minister Katsunobu Kato has expressed concerns over potential government intervention in foreign exchange markets, which could provide some support for the Yen. Traders are likely to adopt a cautious stance ahead of the critical BoJ meeting scheduled for Thursday, alongside important US macroeconomic data releases expected this week.
Market Update: Japanese Yen’s Position Affected by BoJ Rate Hike Speculation
Data released by Japan’s Statistics Bureau on Tuesday revealed a decrease in the unemployment rate from 2.5% to 2.4% in September, coupled with an increase in the job-to-applicant ratio to 1.24. This strong labor demand may support rising wages and could prompt the BoJ to consider future interest rate increases.
Kato reiterated his vigilance regarding currency fluctuations, particularly those influenced by speculative trading, which has revived concerns of potential government intervention. In a political development, Prime Minister Shigeru Ishiba is reportedly seeking a coalition with the DPP following a setback in retaining a lower house majority during recent elections. Tamaki cautioned against significant policy shifts by the BoJ, emphasizing the need to monitor real wages, which remain stagnant, as a guide for future fiscal and monetary policies.
US Treasury bond yields have receded from recent multi-month highs, which has kept US Dollar bulls on the defensive below their highest levels since July 30, exerting further pressure on the USD/JPY pair. Strong US economic indicators have dampened speculation of aggressive easing measures by the Federal Reserve, providing tailwinds for US bond yields amid concerns about deficit spending ahead of the upcoming elections.
With the US presidential election drawing near, a recent poll indicates a close contest between Vice President Kamala Harris and Republican nominee Donald Trump. Market participants are now looking ahead to Tuesday’s US economic releases, including the Conference Board’s Consumer Confidence Index and the Job Openings and Labor Turnover Survey (JOLTS), for short-term direction. However, the primary focus will remain on the BoJ’s decision on Thursday and key US economic indicators, such as the Advance Q3 GDP, Personal Consumption Expenditures (PCE) Price Index, and Nonfarm Payrolls (NFP) report.
Technical Analysis: USD/JPY Bulls Need to Surpass Key Fibonacci Level
From a technical standpoint, last week’s breakout above the 150.65 level, which encompasses the 100-day Simple Moving Average (SMA) and the 50% Fibonacci retracement level of the July-September decline, was seen as a bullish signal. However, the failure to establish momentum beyond the 61.8% Fibonacci level raises concerns. Additionally, the Relative Strength Index (RSI) on the daily chart is nearing overbought territory, suggesting a potential need for consolidation or a pullback before further gains can be realized.
Should a pullback occur, it may attract dip-buyers, with support likely around the recent swing low near 152.65. Continued selling pressure could push the USD/JPY pair down to the 152.00 mark, targeting support levels at 151.45 and 151.00. The downward trend may challenge the key resistance level at 150.65, which now serves as a crucial pivot point for price action.
Conversely, resistance is anticipated around the 154.00 level, followed by the 154.35-154.40 supply zone. A sustained buying momentum could lead to a move toward reclaiming the psychological 155.00 mark, beyond which the USD/JPY pair may test the late-July swing high near 155.20.
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