Japanese Yen struggles to lure buyers; seems vulnerable amid BoJ uncertainty

The Japanese Yen (JPY) struggles to capitalize on a modest intraday uptick against a softer US Dollar (USD) and remains close to a nine-month low, touched the previous day. Concerns about the US economy keep the USD depressed below a one-week low and continue to weigh on investors' sentiment. This, in turn, drives some safe-haven flows towards the JPY amid speculations that Japanese authorities would step into the market to stem further weakness in the domestic currency.

Meanwhile, Japanese Prime Minister Sanae Takaichi's expansionary fiscal policy stance and her preference for interest rates to stay low continue to fuel uncertainty surrounding the Bank of Japan's (BoJ) policy tightening path. This is holding back the JPY bulls from placing aggressive bets. Furthermore, less dovish Federal Reserve (Fed) expectations act as a tailwind for the USD and the USD/JPY pair as traders keenly await FOMC minutes before placing fresh directional bets.

Japanese Yen bulls seem reluctant amid BoJ rate hike uncertainty

• A panel, consisting of lawmakers from Japan's ruling Liberal Democratic Party, proposed on Tuesday compiling a supplementary budget exceeding ¥25 trillion to fund Prime Minister Sanae Takaichi's planned stimulus package. This fuels anxiety over the supply of new government debt and pushes the yield on the 40-year Japanese government bonds to a record high.
• Takaichi said last week that Japan still faced the risk of returning to deflation and added that she strongly hopes the Bank of Japan achieves inflation driven by wages rather than primarily through rising food costs. Takaichi urged the BoJ to cooperate with government efforts to reflate the economy and also voiced her displeasure over the idea of raising interest rates.
• Meanwhile, speculations that the recent decline in the Japanese Yen could trigger intervention from government authorities hold back bearish traders from placing fresh bets. Adding to this, the prevalent risk-off environment offers some support to safe-haven JPY, which, along with the lack of US Dollar buying, keeps a lid on further gains for the USD/JPY pair.
• The USD bulls await the release of delayed US macro data for clues about the health of the world's largest economy amid signs of a softening labor market and the Federal Reserve's next move. In fact, Fed Vice Chair Philip Jefferson said the central bank needs to proceed slowly, while Fed Governor Christopher Waller continued to build the case for further rate cuts.
• Hence, the market focus will remain glued to the release of FOMC meeting Minutes, due later this Wednesday, which will play a key role in influencing the near-term USD price dynamics. The attention will then shift to the closely-watched US Nonfarm Payrolls report for September on Thursday. The latter should provide some meaningful impetus to the USD/JPY pair.

USD/JPY seems poised to climb further while above 154.50-154.45

This week's back-to-back close above the 155.00 psychological mark and positive oscillators suggest that the path of least resistance for the USD/JPY pair remains to the upside. Hence, some follow-through strength, towards reclaiming the 156.00 round figure, looks like a distinct possibility. The momentum could extend further towards the next relevant hurdle near the 156.50-156.60 region, above which spot prices to climb to the 157.00 mark en route to the 157.35 area.

On the flip side, corrective pullbacks might now find decent support near the 155.00 mark, and any further weakness is more likely to attract fresh buyers near the 154.50-154.45 horizontal resistance breakpoint. The latter should act as a key pivotal point, below which the USD/JPY pair could extend the fall towards the 154.00 round figure en route to the next relevant support near the 153.60-153.50 region and the 153.00 mark.