The Japanese Yen (JPY) continues to face challenges in making a meaningful recovery against the US Dollar (USD), hovering near a three-month low reached earlier this week. Market analysts speculate that the recent loss of a parliamentary majority by Japan’s ruling coalition could hinder the Bank of Japan‘s (BoJ) ability to tighten monetary policy. Furthermore, a generally optimistic risk sentiment is dampening demand for the traditionally safe-haven JPY.
Despite these pressures, concerns regarding potential intervention by Japanese authorities to stabilize the currency provide some support for the Yen. Traders appear hesitant to make aggressive bets, opting instead to remain on the sidelines ahead of the crucial BoJ policy announcement scheduled for Thursday. Additionally, this week’s key US economic data releases are anticipated to provide insights into the Federal Reserve’s interest rate trajectory, which will impact the USD and the USD/JPY exchange rate.
In a recent statement, Japan’s Economy Minister, Ryosei Akazawa, warned that a weak Yen could increase import costs and reduce real household income if wages do not rise proportionately, ultimately stifling private consumption. Earlier, Finance Minister Katsunobu Kato emphasized that the government would closely monitor foreign exchange movements, particularly those influenced by speculative trading, raising speculation about possible government intervention.
Political instability in Japan further complicates the outlook for the BoJ’s interest rate plans, which may limit any significant recovery for the Yen, particularly in the current risk-on environment. The USD is also experiencing a downturn, remaining below its highest level since July 30, while the USD/JPY pair drifts away from a three-month peak. However, the downside appears limited as key central bank announcements approach.
The BoJ is expected to reveal its policy decision following a two-day meeting on Thursday. Investors will also be assessing important US macroeconomic data that could provide clarity on the Federal Reserve’s rate outlook. Analysts predict a slower pace of interest rate cuts by the Fed, driven by a series of positive economic reports indicating robust strength in the US economy, leading to increased US Treasury bond yields.
The Conference Board reported on Tuesday that the US Consumer Confidence Index saw its most significant one-month increase since March 2021, rising to 108.7 in October, a nine-month high, up from an upwardly revised 99.2 the previous month. This surge reflects growing optimism regarding business conditions, job markets, and incomes, despite a disappointing Job Openings and Labor Turnover Survey (JOLTS) report indicating vacancies fell to a three-and-a-half-year low in September.
Traders are also concerned about budget deficits exacerbated by spending proposals from Vice President Kamala Harris and Republican nominee Donald Trump, contributing to the recent rise in US bond yields. The focus now shifts to Wednesday’s US economic data, which will include the ADP report on private-sector employment and the Advance GDP report, with expectations for a 3% annualized growth rate in the third quarter.
From a technical analysis perspective, the USD/JPY’s repeated failures to maintain levels above the 61.8% Fibonacci retracement mark raise caution among bullish traders. Last week’s breakout through the 150.65 confluence, which encompasses the 100-day Simple Moving Average (SMA) and the 50% Fibonacci retracement level, was initially seen as a bullish signal. However, the current trend suggests a need for consolidation or a modest pullback before making further gains.
Should the USD/JPY slide below the 153.00 level, support is anticipated around the recent swing low at 152.75, with further backing near 152.40. Additional selling pressure could potentially drive the pair down to 152.00, challenging the 151.45 and 151.00 support levels, extending toward the 150.65 confluence resistance breakpoint, which is likely to act as a crucial support level.
Conversely, the 153.85-153.90 region is now identified as a significant resistance barrier. A sustained breakthrough above this level, leading to a climb past 154.00, could push the USD/JPY pair toward the 154.35-154.40 supply zone, potentially reclaiming the 155.00 psychological level. Ultimately, spot prices could approach the late-July swing high around the 155.20 mark.
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