Japanese Yen remains on front foot against USD, fading BoJ rate hike hopes cap gains

• The Japanese Yen attracts some buyers after verbal intervention from government authorities.
• Doubts about additional BoJ interest rate hikes this year might cap any meaningful JPY gains.
• Bets for smaller rate cuts by the Fed could underpin the USD and lend support to the USD/JPY.

The Japanese Yen (JPY) strengthens a bit against its American counterpart and reverses a part of the previous day’s slide to the 150.30 region, or the lowest level since early August. Comments from Japanese authorities fueled speculations about a possible government intervention, which, along with expectations that stronger domestic inflation could provide the Bank of Japan (BoJ) room to raise interest rates, underpin the JPY. 

Apart from this, a modest US Dollar (USD) pullback from a two-and-half-month top exerts some downward pressure on the USD/JPY pair. That said, firming expectations that the BoJ will refrain from raising rates again this year amid uncertainty over the new political leadership’s preference for the monetary policy might cap gains for the JPY and lend support to the pair ahead of the general election on October 27.

Daily Digest Market Movers: Japanese Yen benefits from fears of government intervention, BoJ uncertainty cap gains

• Japan’s vice finance minister for international affairs, or the top currency diplomat, Atsushi Mimura noted this Friday that the recent moves in the Japanese Yen are somewhat rapid and one-sided and that excess volatility in the FX market is undesirable.
• Moreover, a spokesman for the Japanese government said that it is important for currencies to move in a stable manner reflecting fundamentals and that authorities are closely watching FX moves with a high sense of urgency, including speculative moves.
• Government data released earlier today showed that Japan’s headline Consumer Price Index (CPI) decelerated to the 2.5% year-on-year (YoY) rate in September and the Core CPI, which excludes volatile fresh food items, eased from a 10-month high. 
• Against the backdrop of a surprise opposition to further rate hikes from Japan’s Prime Minister Shigeru Ishiba, signs of easing inflationary pressures raise doubts over just how much headroom the Bank of Japan will have to keep raising interest rates.
• The markets, meanwhile, reacted little to the Chinese macro data, which showed that the economy expanded by 0.9% in the third quarter of 2024 and the annual growth rate stood at 4.6%, while Retail Sales and Industrial Production surpassed estimates.
• Thursday upbeat US data suggested that the economy remains on solid footing and reaffirmed bets for a less aggressive easing by the Federal Reserve, which keeps the US Treasury bond yields elevated and acts as a tailwind for the US Dollar. 
• The USD Index (DXY), which tracks the Greenback against a basket of currencies, stands tall near its highest level since early August and should act as a tailwind for the USD/JPY pair, warranting some caution before positioning for deeper losses.
• Moving ahead, the US housing market data – Building Permits and Housing Starts – and Fed Governor Christopher Waller’s scheduled speech later during the North American session might produce short-term trading opportunities heading into the weekend.

Technical Outlook: USD/JPY bulls have the upper hand while above 149.75 support, dip-buying to limit further losses

From a technical perspective, the overnight breakout above the 150.00 psychological mark, or the top boundary of a three-day-old range held since the beginning of the week, could be seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone. This, in turn, suggests that the path of least resistance for the USD/JPY pair is to the upside. 

Hence, any subsequent slide might still be seen as a buying opportunity and is more likely to find decent support near the 149.20 area. This is closely followed by the 149.00 round figure, below which the USD/JPY pair could accelerate the corrective fall to the 148.60-148.55 region en route to the 148.00 mark and last week’s swing low, around the 147.35-147.30 zone. The latter should act as a key pivotal point, which if broken might shift the bias in favor of bearish traders. 

On the flip side, momentum above the overnight swing high, around the 150.30 area, could extend further towards the August monthly swing high, around the 150.85-150.90 region. Some follow-through buying beyond the 151.00 mark will reinforce the positive outlook for the USD/JPY pair and pave the way for a further near-term appreciation towards the 152.00 neighborhood.