Japanese Yen bounces off multi-month low against USD, not out of the woods yet

The Japanese Yen (JPY) trims a part of its heavy intraday losses against its American counterpart and rebounds around 50 pips after touching a fresh three-month low earlier this Monday. Any meaningful JPY-appreciating move, however, remains elusive in the wake of uncertainty over the Bank of Japan's (BoJ) rate-hike plans, aggravated by the loss of a parliamentary majority for Japan's ruling coalition. Apart from this, a generally positive risk tone should further act as a headwind for the safe-haven JPY. 

Meanwhile, the incoming US macro data suggested that the economy remains on strong footing and reaffirmed market bets for a less aggressive policy easing by the Federal Reserve (Fed). Adding to this, deficit-spending concerns after the November 5 US presidential election and the odds of Donald Trump winning the presidency continue to lift the US Treasury bond yields. This has been a key factor behind the recent US Dollar (USD) rally to a three-month high and should cap the lower-yielding JPY. 

Daily Digest Market Movers: Japanese Yen might struggle to attract buyers amid diminishing odds for more BoJ rate hikes

• Japan's ruling coalition lost its parliamentary majority in Sunday's election for the first time since 2009, raising doubts over the Bank of Japan's ability to hike interest rates further and leading to a bearish weekly gap opening for the Japanese Yen. 
• Public broadcaster NHK reported that Prime Minister Shigeru Ishiba's Liberal Democratic Party (LDP) and its coalition partner Komeito won 215 of 465 seats in the lower house, falling short of the 233 required for a majority and down from 279 held. 
• Bets for smaller rate cuts by the Federal Reserve, along with concerns that spending plans of Vice President Kamala Harris and the Republican nominee Donald Trump will increase the deficit, lead to an extended sell-off in the US bond market. 
• The yield on the benchmark 10-year US government bond stands firm near a three-month high touched last week, lifting the US Dollar closer to its highest level since July 30 and contributing to driving flows away from the lower-yielding JPY. 
• In the latest geopolitical developments, Israel carried out precise strikes on military targets across Iran over the weekend in retaliation to the latter's barrage of ballistic missiles fired earlier this month and months of continuous attacks.
• Meanwhile, Iran indicated that it will not retaliate to Israeli strikes if a deal is reached for a ceasefire agreement in Gaza and Lebanon, easing fears of a further escalation of tensions in the Middle East and a broader conflict in the region.
• China’s Vice Minister of Finance, Liao Min, said on Monday that the country will step up countercyclical adjustments of its macro policies to bolster economic recovery in the fourth quarter and is confident of achieving the 5% growth target.

Technical Outlook: USD/JPY any corrective decline could be seen as a buying opportunity and remain limited

From a technical perspective, the recent breakout through the 200-day Simple Moving Average (SMA) and a subsequent move beyond the 61.8% Fibonacci retracement level of the July-September downfall could be seen as a fresh trigger for the USD/JPY bulls. This further validates the near-term positive outlook for the pair and supports prospects for additional gains beyond the 154.00 mark, towards the next relevant hurdle near the 154.35-154.40 supply zone. The momentum could extend further towards reclaiming the 155.00 psychological mark en route to the late July swing high, around the 155.20 region.

Meanwhile, the Relative Strength Index (RSI) on the daily chart has just started moving into overbought territory and warrants some caution for bullish traders. 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 pullback, however, now seems to find decent support near the 153.20-153.15 area ahead of the 153.00 mark and the Asian session low, around the 152.75 region. Some follow-through selling, however, could drag the USD/JPY pair to the 152.00 round figure.