- The Japanese Yen surrenders modest intraday gains amid the BoJ rate-hike uncertainty.
- An unexpected dip in Japan’s jobless rate and intervention fears might limit JPY losses.
- Traders now await the BoJ and important US macro data before placing directional bets.
The Japanese Yen (JPY) struggles to capitalize on modest intraday gains against its American counterpart and drops to the lower end of the daily trading range during the first half of the European session. Japan Democratic Party for the People (DPP) leader Yuichiro Tamaki opposed further rate hikes by the Bank of Japan (BoJ). This, along with the underlying bullish tone around the equity markets and elevated US Treasury bond yields, turn out to be key factors acting as a headwind for the lower-yielding JPY.
Apart from this, the emergence of some US Dollar (USD) buying assists the USD/JPY pair to rebound nearly 50 pips from the daily swing low, around the 152.75 region. Meanwhile, comments from Japan’s Finance Minister Katsunobu Kato revived fears of possible government intervention and could offer support to the JPY. Traders might also prefer to wait for the crucial BoJ decision on Thursday. This, along with important US macro releases this week, should provide a fresh directional impetus to the currency pair.
Daily Digest Market Movers: Japanese Yen continues to be underpinned by diminishing odds for further BoJ rate hikes
- According to a report published by Japan’s Statistics Bureau this Tuesday, the unemployment rate dipped from 2.5% previous to 2.4% in September and the job-to-applicant ratio rose to 1.24.
- The data reflects strong demand for labor and supports prospects of rising wages, which might lead to a higher inflation outlook and should allow the Bank of Japan to hike interest rates again.
- Japan’s Finance Minister Katsunobu Kato said that he is closely watching FX moves, including those driven by speculators, with a higher sense of vigilance, reviving intervention fears.
- Japan’s Prime Minister Shigeru Ishiba is reportedly seeking a coalition with the Democratic Party for the People (DPP) after failing to retain a majority in the lower house election over the weekend.
- DPP leader Yuichiro Tamaki said that the BoJ should avoid big policy change now with real wages still at a standstill and wants policymakers to scrutinize whether real wages turn positive stably in guiding fiscal, monetary policy.
- The US Treasury bond yields retreat further from a multi-month top and keep the US Dollar bulls on the defensive below the highest level since July 30, exerting pressure on the USD/JPY pair.
- The recent upbeat US macro data dampened hopes for a more aggressive easing by the Federal Reserve and should act as a tailwind for the US bond yields amid deficit-spending concerns after the US election.
- With the US presidential election approaching, the latest poll indicates a tight race to the White House between Vice President Kamala Harris and the Republican nominee Donald Trump.
- Traders now look to Tuesday’s US economic docket – featuring the Conference Board’s Consumer Confidence Index and Job Openings and Labor Turnover Survey (JOLTS) – for short-term impetus.
- The focus, however, will remain on the BoJ decision on Thursday and the key US macro data – the Advance Q3 GDP print, the Personal Consumption Expenditures (PCE) Price Index and the Nonfarm Payrolls (NFP) report.
Technical Outlook: USD/JPY needs to find acceptance above 61.8% Fibo. for bulls to build on the recent move up
From a technical perspective, last week’s breakout through the 150.65 confluence – comprising the 100-day Simple Moving Average (SMA) and the 50% Fibonacci retracement level of the July-September downfall – was seen as a fresh trigger for bulls. That said, the overnight failure to find acceptance or build on the momentum beyond the 61.8% Fibo. level warrants some caution. Moreover, the Relative Strength Index (RSI) on the daily chart remains close to the overbought zone, making it prudent to wait for some near-term consolidation or a further pullback before positioning for further gains.
Any subsequent slide, however, is likely to attract some dip-buyers and remain limited near the overnight swing low, around the 152.65 region. Some follow-through selling, however, could drag the USD/JPY pair to the 152.00 mark en route to the 151.45 support and the 151.00 mark. The downward trajectory could extend further towards challenging the 150.65 confluence resistance breakpoint, which should now act as a key pivotal point and a strong base for spot prices.
On the flip side, the 154.00 mark could offer some resistance ahead of the 154.35-154.40 supply zone. Some follow-through buying should pave the way for a move towards reclaiming the 155.00 psychological mark, above which the USD/JPY pair seems all set to test the late-July swing high, around the 155.20 region.
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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