The Japanese Yen (JPY) partially recouped heavy losses against the US Dollar (USD) during Thursday’s Asian session, moving away from its lowest level since July 30. Verbal intervention from Japanese officials helped support the Yen, as the USD saw a modest pullback, putting downward pressure on the USD/JPY pair.
Despite this recovery, the Yen remains under pressure due to lingering doubts over the Bank of Japan‘s (BoJ) ability to raise interest rates further and the prevailing risk-on sentiment. Additionally, expectations of stronger economic growth and inflation under a potential Trump presidency bolster the case for slower rate cuts by the Federal Reserve (Fed). This dynamic keeps US Treasury bond yields elevated, which benefits the USD and continues to weigh on the lower-yielding Yen.
Market Movers: Japan Takes Action Amid FX Volatility
On Wednesday, Japan’s Chief Cabinet Secretary, Yoshimasa Hayashi, reaffirmed the government’s intention to monitor the foreign exchange market closely, particularly with an increased focus on speculative movements. On Thursday, Japan’s Vice Finance Minister for International Affairs, Atsushi Mimura, warned that the government was prepared to take “appropriate actions” against excessive FX moves. Meanwhile, Finance Minister Katsunobu Kato stressed the importance of achieving fiscal health while pushing for economic recovery and escaping deflation.
The minutes from the Bank of Japan’s September meeting showed that the central bank is planning gradual interest rate hikes but remains cautious due to global economic uncertainties, particularly in the US. However, market sentiment suggests that Japan’s political landscape may make it difficult for the BoJ to tighten monetary policy significantly, keeping the Yen under pressure.
USD Strength Supported by Trump Policies and Rising Yields
The US Dollar surged to its highest levels since July, recording its largest one-day gain since September 2022, amid growing optimism that Donald Trump’s policies could drive inflation and slow the pace of interest rate cuts. This resurgence led to a sell-off in US fixed-income markets, pushing the yield on the benchmark 10-year US Treasury bond to 4.45%, its highest level since July. This widening of the US-Japan rate differential continues to favor the USD over the JPY, suggesting that the path of least resistance for the USD/JPY pair is likely to remain upwards.
Technical Outlook: USD/JPY Holds Above Key Support Level
From a technical perspective, USD/JPY broke above the 153.80-153.85 resistance zone and strengthened beyond the 154.00 mark, signaling bullish momentum. Oscillators on the daily chart remain in positive territory, suggesting a continued positive outlook for the pair. If the bullish trend persists, the pair could target the psychological 155.00 level, with the next key resistance at 155.45-155.50.
On the downside, 154.00 now serves as immediate support, with further declines potentially finding support near 153.80-153.85. A break below this level could lead to a move towards 153.25, with 153.00 and 152.75 acting as additional support levels. Despite the potential for short-term corrections, any decline is expected to be limited, presenting a buying opportunity near the 152.00 mark.
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