The Japanese Yen (JPY) weakened at the start of the week as the Bank of Japan‘s (BoJ) Summary of Opinions from its October meeting revealed a divided stance among policymakers on the timing of interest rate hikes. Combined with recent political instability in Japan, these uncertainties are casting doubt on the BoJ’s ability to tighten monetary policy further, which weighed down the Yen in early European trading on Monday. Adding to the pressure, concerns persist that U.S. President-elect Donald Trump may impose protectionist trade measures on Japan, curbing investor appetite for the Yen.
However, recent verbal intervention by Japanese authorities and a cautious market mood could help limit further declines for the safe-haven currency. Investors may adopt a wait-and-see approach ahead of key economic releases later this week, including U.S. consumer inflation data and Japan’s preliminary Q3 GDP report, along with a closely-watched speech by Federal Reserve (Fed) Chair Jerome Powell. Expectations that Trump’s policies will fuel inflation and restrict the Fed’s ability to ease rates further continue to buoy the U.S. Dollar (USD), adding pressure to the USD/JPY pair.
BoJ Policy and Japanese Political Shakeup Pressure the Yen
The BoJ’s recent Summary of Opinions from its late October meeting underscored how policymakers are weighing the influence of U.S. economic shifts and potential Trump policies as the Japanese central bank contemplates further rate hikes. Meanwhile, Japan’s political arena remains tense, with Prime Minister Shigeru Ishiba facing a leadership vote in parliament following the ruling Liberal Democratic Party’s (LDP) loss of its lower-house majority. The potential for a minority government in Japan raises fresh questions about the BoJ’s ability to enact further rate hikes, further depressing demand for the Yen amid positive global market sentiment.
The U.S. Dollar, meanwhile, continues consolidating recent gains, trading near a four-month high driven by market optimism over Trump’s electoral victory last week. Many investors are now confident that the incoming president’s fiscal policies will stoke inflation, limiting the Fed’s ability to cut rates and underpinning the Greenback. Over the weekend, Minneapolis Fed President Neel Kashkari emphasized that the Fed seeks clearer evidence of inflation approaching the 2% target before considering interest rate cuts.
Focus on Key Economic Indicators and Fed Speeches
The USD/JPY pair is likely to be influenced by a series of significant economic data releases this week, with U.S. consumer inflation data due Wednesday, followed by the Producer Price Index (PPI) on Thursday, and Japan’s preliminary Q3 GDP figures and U.S. retail sales on Friday. Market participants will also be closely monitoring statements from Fed officials, particularly Fed Chair Jerome Powell’s Friday speech, which is expected to provide further insight into the Fed’s stance on inflation and interest rates, influencing the USD/JPY’s next movement.
Technical Outlook: USD/JPY Eyes 154.00 Mark as Resistance Levels Hold
Technically, the USD/JPY pair has so far maintained levels above the key 200-day Simple Moving Average (SMA) resistance, which may act as a pivotal support point. Positive momentum indicators on the daily chart suggest a favorable outlook for further upward movement, though resistance could emerge near the 153.50 range. If the pair breaks beyond this level, it could pave the way toward the 154.00 mark and a potential retest of the recent multi-month high around 154.70.
Conversely, a downside move below the 152.60 level could expose the USD/JPY pair to a further decline, potentially testing the 152.00 threshold. A sustained drop below the 151.70 region, marked by the 200-day SMA, could signal a shift toward a bearish outlook, suggesting that the recent upward momentum from September lows may be waning.
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