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Japanese Yen bulls remain on the sidelines amid BoJ uncertainty, modest USD strength

  • The Japanese Yen fails to build on the overnight strength amid the BoJ rate hike uncertainty.
  • A modest USD uptick further assists USD/JPY in regaining some positive traction on Friday.
  • A softer risk tone could limit the JPY losses and cap spot prices ahead of the US PPI report.

The Japanese Yen (JPY) drifts lower against its American counterpart on Friday and stalls the previous day's recovery move from its lowest level since early August. Japanese Prime Minister Shigeru Ishiba's blunt comments on monetary policy, along with a drop in Japan's real wages for the first time in three months, a decline in household spending and signs that price pressures from raw material costs were subsiding raised doubts about the Bank of Japan's (BoJ) rate hike plans. This, in turn, undermines the JPY and assists the USD/JPY pair to attract some dip-buyers amid a modest US Dollar (USD) uptick.

Despite the conviction that the Federal Reserve (Fed) will continue cutting interest rates amid signs of labor market weakness, traders have fully priced out the possibility of a more aggressive policy easing. This helps limit the USD corrective pullback from a nearly two-month peak touched on Thursday and offers some support to the USD/JPY pair. That said, a softer risk tone limits losses for the safe-haven JPY and might cap the currency pair ahead of the US Producer Price Index (PPI), due later this Friday. Nevertheless, the fundamental backdrop suggests that the path of least resistance for spot prices is to the upside. 

Daily Digest Market Movers: Japanese Yen remains on the defensive amid BoJ uncertainty, smaller Fed rate cut bets

  • Expectations that the Bank of Japan will be in no rush to lift borrowing costs fail to assist the Japanese Yen to capitalize on its modest recovery against the US Dollar, from over a two-month low touched on Thursday.
  • Furthermore, political uncertainty ahead of a snap election on October 27 in Japan, along with a generally positive risk tone, could undermine demand for the JPY and continue to act as a tailwind for the USD/JPY pair. 
  • The US Dollar shot to its highest level since mid-August after the US Labor Department reported that the core Consumer Price Index, which excludes food and energy prices, rose 3.3% on a yearly basis in September. 
  • Meanwhile, the headline CPI climbed 2.4% in the 12 months through September vs. 2.3% expected. This, however, was lower than the 2.5% in August and also the smallest year-on-year rise since February 2021.
  • Furthermore, the number of Americans seeking unemployment benefits surged 33,000, to a seasonally adjusted 258,000 for the week ended October 5 and pointed to initial signs of weakness in the US labor market. 
  • Investors now seem convinced that the Federal Reserve will continue cutting interest rates, which keeps the USD bulls on the defensive ahead of the release of the US Producer Price Index (PPI), due later this Friday.

Technical Outlook: USD/JPY bullish potential intact while above 148.00, dip-buying should help limit losses

From a technical perspective, last week's move beyond the 50-day Simple Moving Average (SMA) for the first time since mid-July and acceptance above the 38.2% Fibonacci retracement level of the July-September downfall favors bulls. Moreover, oscillators on the daily chart have been gaining positive traction and are far from being in the overbought territory, suggesting that the path of least resistance for the USD/JPY pair is to the upside. Hence, any subsequent fall is more likely to attract fresh buyers and should remain limited near the 148.00 mark. 

The latter should act as a key pivotal point, which if broken might prompt some technical selling and drag the USD/JPY pair to the 147.35 intermediate support en route to the 147.00 mark and the 146.50 area. On the flip side, the 149.00 round figure now seems to act as an immediate hurdle ahead of the overnight swing high, around the 149.55-149.60 region, above which bulls might aim to reclaim the 150.00 psychological mark. The momentum could extend further towards the 50% Fibo. level, around the 150.75-150.80 region.

US Dollar PRICE Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Canadian Dollar.

 USDEURGBPJPYCADAUDNZDCHF
USD -0.05%0.06%0.06%0.17%0.06%-0.02%0.11%
EUR0.05% 0.06%0.07%0.16%0.10%-0.02%0.11%
GBP-0.06%-0.06% 0.00%0.10%0.05%-0.09%0.05%
JPY-0.06%-0.07%0.00% 0.10%0.00%-0.11%-0.05%
CAD-0.17%-0.16%-0.10%-0.10% -0.08%-0.19%-0.06%
AUD-0.06%-0.10%-0.05%-0.01%0.08% -0.14%-0.02%
NZD0.02%0.02%0.09%0.11%0.19%0.14% 0.14%
CHF-0.11%-0.11%-0.05%0.05%0.06%0.02%-0.14% 

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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