Japanese Yen seems vulnerable near nine-month low against USD as BoJ uncertainty persists

The Japanese Yen (JPY) remains on the back foot heading into the European session on Thursday and hangs near a nine-month low, touched against its American counterpart the previous day. Investors remain uncertain about the Bank of Japan's (BoJ) policy tightening plan amid Japan's Prime Minister Sanae Takaichi's pro-stimulus stance and her preference for interest rates to remain low. This offsets BoJ Governor Kazuo Ueda's remarks that the underlying inflation is gradually accelerating toward the 2% goal and continues to undermine the JPY.

Apart from this, the optimism led by a positive development to reopen the US federal government turns out to be another factor denting the JPY's safe-haven status. Meanwhile, the recent fall in the JPY prompted Japan's Finance Minister Satsuki Katayama to issue a warning on currency movements, fueling speculations that Japanese authorities could intervene to stem weakness in the domestic currency. This is holding back the JPY bears from placing aggressive bets. The US Dollar (USD), on the other hand, struggles to lure buyers and caps the USD/JPY pair.

Japanese Yen continues to be undermined by BoJ rate hike uncertainty

• Bank of Japan (BoJ) Governor Kazuo Ueda said on Thursday that the central bank strives to achieve moderate inflation backed by wage growth by helping improve the economy. Ueda pointed to resilient consumption driven by stronger household incomes and improving labour-market conditions, and also noted that underlying inflation is gradually accelerating toward the BoJ’s 2% goal.
• Japan's Prime Minister Sanae Takaichi said on Wednesday that the government and the BoJ will continue to work together to develop the national economy. Takaichi had pledged to continue former Premier Shinzo Abe's policy mix – Abenomics – and called on the BoJ to fully cooperate with the government. This signals her administration's preference for interest rates to stay low.
• Japan's Finance Minister Satsuki Katayama noted that the BoJ will guide policy to sustainably and stably achieve 2% inflation target. The government will pursue responsible fiscal policy to avoid a free fall in the JPY, which will push up import costs and cause inflation unseen in the past, Katayama added. On Wednesday, Katayama said that she will be watching FX moves with a high sense of urgency.
• The US Senate has passed the funding bill to end the longest-running government shutdown, boosting investors' confidence and triggering a fresh wave of the global risk-on trade. The US Dollar bulls, however, remain on the back foot amid concerns about weakening economic momentum on the back of the US government closure and bets for more rate cuts by the Federal Reserve.
• According to the CME Group's FedWatch Tool, traders are pricing in a 60% probability that the US central bank will lower borrowing costs by a 25-basis-point in December. The expectations were reaffirmed by the recent US data, which indicated notable job losses in October. Moreover, consumer sentiment fell to a 3½-year low in early November, reaffirming dovish Fed expectations.
• This marks a significant divergence in comparison to the BoJ's signal that the next interest rate increase could come as soon as December. This, along with intervention fears, is holding back traders from placing fresh bearish bets around the Japanese Yen and acting as a headwind for the USD/JPY pair. Investors will continue to take cues from speeches from FOMC members later this Thursday.

USD/JPY bulls await strength beyond the 155.00 psychological mark

From a technical perspective, Wednesday's breakout through the 154.45-154.50 supply zone was seen as a fresh trigger for the USD/JPY bulls. Moreover, oscillators on the daily chart are holding in positive territory and back the case for additional gains. A sustained strength beyond the 155.00 psychological mark will reaffirm the constructive outlook and lift spot prices towards the 155.60-155.65 intermediate hurdle en route to the 156.00 round figure.

On the flip side, any corrective pullback below the 154.50-154.45 resistance breakpoint could be seen as a buying opportunity near the 154.00 mark. A convincing break below the said handle, however, might prompt some technical selling and drag the USD/JPY pair to the 153.60-153.50 intermediate support. Spot prices could decline further towards the 153.00 round figure, which, if broken, should pave the way for a further weakness towards the 152.15-152.10 region.