Japanese Yen Holds Modest Recovery Gains; BoJ Uncertainty Limits Upside

The Japanese Yen (JPY) gains traction on Thursday following verbal intervention from officials, partially recovering from the significant loses incurred over the past three days. This, combined with a modest pullback in the US Dollar (USD) from a three-month high, has pulled the USD/JPY pair away from its recent peak around the 153.20 mark, its highest since July 31. However, further JPY gains may be limited due to uncertainty surrounding the Bank of Japan’s (BoJ) ability to implement rate hikes this year, especially with the upcoming general election in Japan.

Moreover, expectations for a more cautious easing approach by the Federal Reserve (Fed), coupled with concerns about deficit spending after the US election, are likely to keep US bond yields elevated, which could limit any downside for the USD. As a result, the lower-yielding JPY may struggle to maintain momentum, and traders may need to wait for stronger buying signals before positioning for a counter-trend move in USD/JPY. Investors now turn their attention to the release of flash global PMI data to identify short-term trading opportunities.

Daily Digest Market Movers: Japanese Yen gains after official intervention

• Japan’s Finance Minister Katsunobu Kato expressed concern over rapid, one-sided currency moves, emphasizing the need for stability based on economic fundamentals.
• Japan’s Deputy Chief Cabinet Secretary Kazuhiko Aoki reiterated that the government is closely monitoring foreign exchange movements, particularly speculative ones.
• A private-sector survey showed weaker economic conditions in Japan, with October’s manufacturing and services sectors contracting.
• The au Jibun Bank flash Manufacturing PMI fell to 49.0 in October, the fourth consecutive month of contraction, while the services PMI dropped to 49.3, indicating contraction for the first time since June.
• Opinion polls suggest Japan’s ruling Liberal Democratic Party (LDP) may lose its majority in the October 27 general election, heightening uncertainty over the BoJ’s future rate-hike plans.
• US bond yields surged to three-month highs as markets expect modest interest rate cuts by the Fed over the next year.
• The US Dollar pulled back slightly from its highest level since July as investors took profits after a strong upward trend since early October.
• The release of US PMI data, along with bond yields, will be key drivers of USD/JPY in the near term.

Technical Outlook: USD/JPY bulls in control, 152.00 key support level

From a technical perspective, the breakout above the 150.65 confluence level and the 200-day Simple Moving Average (SMA) on Tuesday provided fresh bullish momentum for USD/JPY. However, the upward move has paused near the 153.20 area, the 61.8% Fibonacci retracement of the July-September decline, as the daily Relative Strength Index (RSI) shows signs of being overbought. A decisive break above the 153.20 level could pave the way for further gains, potentially pushing the pair towards the 154.00 mark, with additional targets around 154.30 and 154.75.

On the downside, the 152.00 level serves as immediate support. A break below this could lead to a deeper correction toward 151.45-151.40 and possibly the 151.00 level. However, any pullback is likely to be seen as a buying opportunity, with strong support expected around the 150.65 region. A sustained break below this level could indicate that the bullish momentum has faded, shifting the near-term bias in favor of the bears.