Japanese Yen struggles to capitalize on modest intraday gains; not out of the woods yet

The Japanese Yen (JPY) remains on the front foot against its American counterpart heading into the European session on Thursday amid speculations that Japanese authorities will intervene to prop up the domestic currency. This, along with a modest US Dollar (USD) downtick, turn out to be key factors exerting some pressure on the USD/JPY pair. That said, any meaningful JPY recovery from its lowest level since July 30 touched on Wednesday seems elusive in the wake of the uncertainty about the Bank of Japan's (BoJ) rate hike plans. 

Furthermore, the underlying bullish tone across the global equity markets should continue to cap the upside for the safe-haven JPY. Meanwhile, hopes of higher growth and inflation under Trump's presidency support prospects for slower rate cuts by the Federal Reserve (Fed). This keeps the US Treasury bond yields, which should continue to offer support to the USD and contribute to keeping a lid on the lower-yielding JPY. Traders might also prefer to wait for the outcome of the Federal Open Market Committee (FOMC) meeting later today. 

Daily Digest Market Movers: Japanese Yen lacks bullish conviction amid BoJ rate-hike uncertainty, positive risk tone

• Japan's Chief Cabinet Secretary, Yoshimasa Hayashi, reiterated on Wednesday that the government intended to closely watch moves in the FX market, including speculative moves, with a higher sense of urgency.
• Adding to this, Atsushi Mimura, Japan’s Vice Finance Minister for International Affairs and top foreign exchange official, said on Thursday that the government is ready to take appropriate actions against excess FX moves if necessary.
• Japan’s Finance Minister Katsunobu Kato said on Thursday that it is important to achieve fiscal health while we strongly push for economic recovery and that we must take this chance to achieve an escape from deflation.
• The minutes of the September Bank of Japan meeting showed that the central bank plans gradual policy rate increases, though it remains cautious about overseas economic uncertainties, especially from the US.
• Investors, however, seem convinced that the political uncertainty in Japan could make it difficult for the BoJ to tighten monetary policy further, which, along with the risk-on mood, undermines the Japanese Yen. 
• The US Dollar recorded its biggest one-day gain since September 2022, touching the highest level since July amid hopes that Donald Trump's policies would push up inflation and reduce the pace of interest rate cuts.
• Furthermore, the return of the so-called Trump trade triggered a sell-off in the US fixed-income market, pushing the yield on the benchmark 10-year US government bond to 4.45%, or its highest level since July.
• This resulted in the further widening of the US-Japan rate differential, which might continue to weigh on the lower-yielding JPY and suggests that the path of least resistance for the USD/JPY pair is to the upside. 

Technical Outlook: USD/JPY corrective slide might still be seen as a buying opportunity

From a technical perspective, the overnight breakout above the 153.80-153.85 supply zone and a subsequent strength beyond the 154.00 mark was seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart are holding in positive territory and are still away from being in the overbought zone. This further validates the near-term positive outlook for the USD/JPY pair and supports prospects for a move towards reclaiming the 155.00 psychological mark. The momentum could extend further towards the next relevant hurdle near the 155.45-155.50 region.

On the flip side, the 154.00 round figure might now offer immediate support to the USD/JPY pair. Some follow-through selling below the 153.85-153.80 resistance-turned-support could drag spot prices to the 153.25 region en route to the 153.00 mark, which is closely followed by the 152.75 support. Any further corrective decline might still be seen as a buying opportunity and is more likely to remain limited near the 152.00 round-figure mark.