Japanese Yen selling remains unabated; USD/JPY refreshes multi-month high amid firmer USD

The Japanese Yen (JPY) remains on the back foot against a broadly firmer US Dollar (USD) and touches a fresh low since mid-February during the Asian session on Thursday. Concerns about Japan's ailing fiscal position on the back of Prime Minister Sanae Takaichi's new economic stimulus package continue to weigh on the JPY. Furthermore, data released earlier this week showed that Japan's economy contracted in Q3 for the first time in six quarters, which could put additional pressure on the Bank of Japan (BoJ) to delay raising interest rates and contribute to the JPY's underperformance.

Apart from this, the prevalent risk-on mood is seen as another factor undermining the JPY's safe-haven status. The USD, on the other hand, climbs to its highest level since late May and remains well supported by reduced bets for another interest rate cut by the US Federal Reserve (Fed) in December, which, in turn, lends additional support to the USD/JPY pair. Meanwhile, some verbal intervention from Japanese authorities fails to provide any respite to the JPY. This backs the case for a further JPY slide as traders look to the delayed US Nonfarm Payrolls (NFP) report for a fresh impetus.

Japanese Yen bears retain control amid Takaichi's expansionary fiscal policies and preference for lower interest rates

• Japan's Chief Cabinet Secretary Minoru Kihara said in a statement this Thursday that the recent FX moves are sharp, one-sided and that he is watching FX market move with a high sense of urgency. FX market needs to move stably reflecting fundamentals, Kihara added further.
• This comes after Japan's Finance Minister Satsuki Katayama issued a fresh warning on Wednesday and said that the government was closely monitoring markets with a high sense of urgency. This fuels intervention fears, though it does little to ease the Japanese Yen selling bias.
• Japan's yield curve has steepened sharply as investors priced in a bigger-than-anticipated spending package from the new Prime Minister Sanae Takaichi. Goushi Kataoka – member of a key government panel – said earlier this week that Japan must compile a stimulus of around ¥23 trillion.
• Kataoka added on Wednesday that the Bank of Japan is unlikely to raise interest rates before March, arguing policymakers must first confirm that a major fiscal package is lifting domestic demand. This signals the Takaichi administration's preference for interest rates to stay low.
• Government data released on Monday showed that Japan's economy contracted for the first time in six quarters during the July-September period. This further tempers expectations that the BoJ will hike rates soon and backs the case for a further depreciating move for the JPY.
• A Reuters poll shows a narrow majority of economists expect the BoJ to raise rates to 0.75% in December, with all forecasters seeing at least that level by end-Q1. JPY weakness and imported inflation risks are reinforcing the case as wage growth is expected to remain high.
• The US Dollar moves back closer to its highest level since May, touched earlier this month amid less dovish Federal Reserve expectations. In fact, chances of another rate cut in December fell after the October FOMC meeting minutes showed that members were divided about how to proceed.
• Traders now look forward to the delayed release of the US Nonfarm Payrolls (NFP) report for more cues about the Fed's rate-cut path. This, in turn, will play a key role in influencing the USD and providing some impetus to the USD/JPY pair later during the North American session.

USD/JPY bulls now ready to give up as fresh breakout through the 157.00 mark comes into play

The daily Relative Strength Index (RSI) is flashing slightly overbought conditions and holding back traders from placing fresh bullish bets around the USD/JPY pair. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for any further appreciating move.

Any corrective slide, however, might now find decent support near the 156.65-156.60 region, below which the USD/JPY pair could extend the fall towards the 156.00 mark. The latter should act as a pivotal point, and a sustained weakness below might prompt some technical selling, which should pave the way for deeper losses.

On the flip side, the 157.40-157.45 region could act as an immediate hurdle, above which the USD/JPY pair could accelerate the momentum towards reclaiming the 158.00 round figure. The next relevant resistance is pegged near mid-158.00s before spot prices aim to test the January swing high, around the 159.00 neighborhood.