- The Japanese Yen stalls the overnight recovery from a nearly two-month trough against the USD.
- The BoJ rate hike uncertainty caps gains for the JPY and lends some support to the USD/JPY pair.
- Geopolitical tensions could benefit the safe-haven JPY and keep a lid on further gains for the major.
The Japanese Yen (JPY) struggles to capitalize on a modest Asian session uptick against its American counterpart, allowing the USD/JPY pair to stall its pullback from the highest level since August 16 touched on Monday. Diminishing odds for another interest rate hike by the Bank of Japan (BoJ) in 2024 and a more aggressive policy easing by the Federal Reserve (Fed) turn out to be a key factor acting as a tailwind for the currency pair.
Any meaningful downside for the JPY, however, seems elusive in the wake of speculations that the Japanese government might intervene in the markets to support the domestic currency. Apart from this, escalating geopolitical tensions in the Middle East might hold back the JPY bears from placing aggressive bets. Traders might also prefer to wait for this week’s release of the FOMC meeting minutes and the US inflation figures.
Daily Digest Market Movers: Japanese Yen bulls remain non committed amid BoJ rate hike uncertainty
- Japan’s Vice Finance Minister for International Affairs Atsushi Mimura warned against speculative moves in the FX market, fueling speculations that the government may intervene to support the Japanese Yen.
- Adding to this, Japan’s newly appointed Finance Minister Katsunobu Kato said the government would monitor how rapid currency moves could potentially impact the economy and would take action if necessary.
- Furthermore, fears that Middle East tensions could turn into a wider conflict, which drives haven flows towards the JPY and drags the USD/JPY pair away from its highest level since August 16 touched on Monday.
- In the latest developments, Lebanon’s Hezbollah fired rockets at Israel’s port city of Haifa and a military base near the central city of Tel Aviv, while Israel bombed a couple of buildings in the southern suburbs of Beirut.
- China’s state planner – the National Development and Reform Commission (NDRC) – said this Tuesday that the downward pressure on China’s economy is increasing, tempering investors’ appetite for riskier assets.
- The recent comments by Japan’s Prime Minister Shigeru Ishiba, saying that the country is not in an environment for more rate increases, raised doubts over the Bank of Japan’s ability to tighten further in the coming months.
- This, along with the uncertainty over the Japanese general elections on October 27, might act as a headwind for the JPY and offer support to the USD/JPY pair amid a short-term bullish tone around the US Dollar.
- Against the backdrop of Federal Reserve Chair Jerome Powell’s hawkish remarks, the upbeat US jobs report dashed hopes for a more aggressive policy easing and kept the USD bulls elevated near a multi-week top.
- Traders now look forward to the release of the FOMC minutes on Wednesday and the key US inflation data – the consumer inflation figures and the Producer Price Index (PPI) on Thursday and Friday, respectively.
Technical Outlook: USD/JPY seems poised to appreciate further, 50-day SMA resistance breakout in play
From a technical perspective, last week’s break above the 50-day Simple Moving Average (SMA), for the first time since mid-July, and the subsequent move beyond the 38.2% Fibonacci retracement level of the July-September downfall were seen as fresh triggers for bulls. Moreover, oscillators on the daily chart have been gaining positive traction and suggest that the path of least resistance for the USD/JPY pair is to the upside. Hence, any further slide might still be seen as a buying opportunity and is more likely to remain cushioned near the 147.00 mark, which should now act as a key pivotal point.
On the flip side, a sustained move back above the 148.00 mark might prompt some technical buying and lift the USD/JPY pair to the 148.70 resistance zone en route to the 149.00 round figure. Some follow-through buying beyond the weekly top, around the 149.10-149.15 region, will reaffirm the positive outlook and allow bulls to reclaim the 150.00 psychological mark.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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