The Japanese Yen (JPY) is struggling to maintain momentum after a modest recovery, stalling against the US Dollar (USD). As the USD/JPY pair pauses its recent pullback from the highest level since August 16, uncertainty surrounding potential interest rate hikes from the Bank of Japan (BoJ) is keeping gains in check while offering some support to the dollar.
Despite this, any significant drop in the JPY seems unlikely, especially with speculation that the Japanese government might intervene to bolster the currency. Additionally, rising geopolitical tensions in the Middle East could prevent aggressive selling of the Yen. Traders are also waiting for the upcoming release of the FOMC meeting minutes and US inflation data to inform their decisions.
Market Movers: JPY Bulls Hesitate Amid Rate Hike Doubts
Japan’s Vice Finance Minister for International Affairs, Atsushi Mimura, cautioned against speculative trading in the foreign exchange market, fueling further speculation that the government may step in to support the Yen. Japan’s new Finance Minister, Katsunobu Kato, echoed these sentiments, stating that the government is closely monitoring rapid currency movements and is prepared to take action if needed.
The ongoing geopolitical situation, particularly the recent escalations between Hezbollah and Israel, is driving investors toward safe-haven currencies like the JPY, helping to limit the USD/JPY pair’s gains. The situation has escalated, with Hezbollah firing rockets into Israel and Israel retaliating with airstrikes in Beirut, raising fears of a wider conflict.
In China, the National Development and Reform Commission (NDRC) has reported increasing downward pressure on the economy, which could dampen risk appetite globally. Additionally, comments from Japan’s Prime Minister, Shigeru Ishiba, indicating that the country is not in a position for further rate increases have raised doubts about the BoJ’s ability to tighten monetary policy in the near future. This uncertainty, coupled with upcoming general elections in Japan on October 27, may act as a headwind for the JPY and support the USD/JPY pair, especially with the current bullish sentiment surrounding the US Dollar.
As for the US, recent hawkish comments from Federal Reserve Chair Jerome Powell and a positive jobs report have dampened hopes for aggressive policy easing, keeping USD bulls buoyed near multi-week highs. Traders are now looking ahead to the FOMC minutes release on Wednesday and key US inflation data, including consumer inflation figures and the Producer Price Index (PPI), scheduled for Thursday and Friday.
Technical Outlook: USD/JPY Poised for Further Gains
From a technical standpoint, the USD/JPY pair recently broke above the 50-day Simple Moving Average (SMA) for the first time since mid-July, alongside moving past the 38.2% Fibonacci retracement level of the July to September decline. This has provided fresh impetus for bullish sentiment, with oscillators on the daily chart showing positive momentum. Any further declines are likely to be seen as buying opportunities, especially near the pivotal 147.00 mark.
On the upside, if the USD/JPY manages to sustain a move above the 148.00 mark, it could trigger technical buying, pushing the pair toward the 148.70 resistance zone and ultimately the round figure of 149.00. A continuation of buying beyond the weekly peak around 149.10-149.15 would reinforce a positive outlook, potentially allowing bulls to target the psychological 150.00 mark.
