- USD/JPY comes under fresh selling pressure on Tuesday amid broad-based USD weakness.
- Bets for smaller rate hikes by the Fed, sliding US bond yields weigh heavily on the greenback.
- The Fed-BoJ policy divergence could undermine the JPY and help limit any meaningful slide.
The USD/JPY pair struggles to capitalize on the previous day's breakout momentum beyond the 100-day SMA and meets with a fresh supply on Tuesday. The pair remains depressed through the early North American session, albeit manages to rebound a few pips from the vicinity of the 141.00 mark, or the daily low.
The US Dollar comes under some renewed selling pressure and stalls its recent strong recovery from a three-month low, which, in turn, is exerting downward pressure on the USD/JPY pair. Investors now seem convinced that the Federal Reserve will slow the pace of its rate-hiking cycle and have been pricing in a greater chance of a relatively smaller 50 bps lift-off in December. This leads to a fresh leg down in the US Treasury bond yields and keeps the USD bulls on the defensive.
That said, the recent hawkish remarks by several Fed officials suggest that the US central bank will continue to tighten its monetary policy to curb inflation. In contrast, the Bank of Japan, so far, has shown no inclination to hike interest rates. In fact, BoJ Governor Haruhiko Kuroda reiterated on Friday that the central bank will stick to its monetary easing to support the economy and added that raising rates now would be inappropriate in light of current economic conditions.
This marks a big divergence in the monetary policy stance adopted by the two major central banks, which might continue to undermine the Japanese Yen. Apart from this, a slight recovery in the global risk sentiment, which tends to dent demand for traditional safe-haven currencies, including the JPY, might contribute to limiting losses for the USD/JPY pair. Investors might also prefer to wait for a fresh catalyst from the FOMC meeting minutes, due for release on Thursday.
Hence, it will be prudent to wait for strong follow-through selling before confirming that the recent bounce from the lowest level since August 29 has run out of steam. Next on tap is the release of the Richmond Manufacturing Index from the US. This, along with a scheduled speech by Cleveland Fed President Loretta Mester, might influence the USD price dynamics and allow traders to grab short-term opportunities around the USD/JPY pair.
Technical levels to watch
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD hovers around 1.0700 after German IFO data
EUR/USD stays in a consolidation phase at around 1.0700 in the European session on Wednesday. Upbeat IFO sentiment data from Germany helps the Euro hold its ground as market focus shifts to US Durable Goods Orders data.
USD/JPY refreshes 34-year high, attacks 155.00 as intervention risks loom
USD/JPY is renewing a multi-decade high, closing in on 155.00. Traders turn cautious on heightened risks of Japan's FX intervention. Broad US Dollar rebound aids the upside in the major. US Durable Goods data are next on tap.
Gold price trades with mild negative bias, manages to hold above $2,300 ahead of US data
Gold price (XAU/USD) edges lower during the early European session on Wednesday, albeit manages to hold its neck above the $2,300 mark and over a two-week low touched the previous day.
Worldcoin looks set for comeback despite Nvidia’s 22% crash Premium
Worldcoin price is in a better position than last week's and shows signs of a potential comeback. This development occurs amid the sharp decline in the valuation of the popular GPU manufacturer Nvidia.
Three fundamentals for the week: US GDP, BoJ and the Fed's favorite inflation gauge stand out Premium
While it is hard to predict when geopolitical news erupts, the level of tension is lower – allowing for key data to have its say. This week's US figures are set to shape the Federal Reserve's decision next week – and the Bank of Japan may struggle to halt the Yen's deterioration.