The Japanese Yen (JPY) slipped against the US Dollar (USD) during the Asian session on Tuesday, pushing the USD/JPY pair away from a one-week low and closer to the mid-152.00s. This downward movement is largely attributed to expectations that Japan’s political landscape may compel the government to adopt expansionary fiscal policies, complicating the Bank of Japan‘s (BoJ) efforts to raise interest rates.
BoJ Governor Kazuo Ueda’s remarks during last week’s post-meeting press conference hinted that a potential interest rate hike could still be on the table for the BoJ’s December policy meeting. However, heightened market jitters surrounding the closely contested US presidential election and ongoing geopolitical risks could bolster the safe-haven appeal of the JPY. Additionally, the narrowing interest rate differential between the US and Japan may caution bearish sentiment toward the Yen.
Investor sentiment has shifted, with many anticipating that the Federal Reserve (Fed) will cut interest rates in the upcoming meeting. This expectation, along with the unwinding of “Trump trades,” has led to a decline in US Treasury bond yields. As a result, the US Dollar has struggled to maintain momentum following a rebound from a two-week low, potentially limiting significant upward movement for the USD/JPY pair.
The USD/JPY pair regained some positive traction on Tuesday, though various factors may restrict its upward potential ahead of key events, including the US presidential election and the Federal Open Market Committee (FOMC) meeting. A rare political turmoil following Japan’s snap election has cast doubt on the BoJ’s ability to further increase rates, exerting downward pressure on the Yen and allowing the USD/JPY pair to approach mid-152.00s once again.
Ueda stated that the BoJ is committed to normalizing its monetary policy and could consider gradual interest rate hikes if economic data aligns with forecasts. Meanwhile, Friday’s mixed US employment figures for October indicated the smallest Nonfarm Payrolls gain since December 2020, reinforcing expectations for a 25 basis point rate cut by the Fed later this week.
Polls suggest a tightening race for the White House, with Democratic Vice President Kamala Harris gaining a slight edge over Donald Trump, prompting traders to unwind “Trump trades” and further reduce US Treasury yields. This scenario has narrowed the US-Japan interest rate differential and provided some support to the JPY amid a generally weaker risk tone.
Technical Outlook: From a technical perspective, the 152.00 level is now acting as a crucial support point ahead of the previous swing low around 151.55-151.50. A continuation of selling pressure could push the USD/JPY pair below the 151.00 mark, testing the 100-day Simple Moving Average (SMA) resistance around the 150.30 region. A decisive break below the 150.00 psychological mark could signal deeper losses.
Conversely, a move above the overnight swing high of 152.55-152.60 could propel the USD/JPY pair towards the 153.00 mark. Further strength may lead to targets in the 153.35-153.40 supply zone, en route to the three-month peak of 153.85-153.90 reached last week. Sustained strength beyond this point would be seen as a bullish trigger, with oscillators on the daily chart indicating positive momentum. This could set the stage for a potential climb toward the next significant hurdle near the 154.60-154.70 area, with an aim to reclaim the 155.00 psychological threshold.
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