- The Japanese Yen struggles to build on its modest intraday gains due to uncertainty surrounding a potential Bank of Japan (BoJ) rate hike.
- Diminished expectations for aggressive Federal Reserve rate cuts boost demand for the US Dollar, supporting USD/JPY.
- Concerns over potential intervention and ongoing geopolitical risks may help cap further losses for the safe-haven JPY.
The Japanese Yen (JPY) gives up most of its intraday gains against the US Dollar, pushing the USD/JPY pair back toward the mid-154.00s as the European session begins on Tuesday. Uncertainty over the timing of a potential rate hike by the Bank of Japan (BoJ), coupled with a generally positive risk sentiment, undermines the safe-haven appeal of the JPY. Additionally, a rebound in US Dollar (USD) demand contributes to an intraday bounce of about 50 pips from below the 154.00 level.
Market participants appear confident that US President-elect Donald Trump's proposed policies could spur inflation, reducing the likelihood of further rate cuts by the Federal Reserve (Fed). This expectation helps the USD regain ground after its recent pullback from the year-to-date high, supporting the USD/JPY pair. However, speculation that Japanese authorities might intervene in the currency markets to strengthen the yen, along with geopolitical risks and easing US Treasury yields, could limit the Yen's losses and cap further upside for the currency pair.
Japanese Yen Bulls Stay Cautious Amid BoJ Uncertainty
- Bank of Japan (BoJ) Governor Kazuo Ueda stated on Monday that the economy is moving towards sustained wage-driven inflation, leaving the possibility open for further monetary tightening.
- However, Ueda offered little clarity on whether the BoJ would raise rates in December, emphasizing that any policy adjustment would depend on economic activity and price trends.
- Japan's Economy Minister Ryosei Akazawa highlighted on Tuesday the importance of boosting wages across all generations as part of the economic package, with the aim of securing cabinet approval soon.
- Geopolitical tensions from the ongoing Russia-Ukraine conflict and the Middle East crises provide some support to the safe-haven Japanese Yen, amid growing concerns over possible intervention in the FX market.
- Finance Minister Katsunobu Kato warned on Friday that the government is closely monitoring the FX market and will take necessary actions against excessive movements.
- Kato also reiterated that Japan's stance on foreign exchange remains unchanged, and authorities will act appropriately to address any excessive currency fluctuations.
- A slight pullback in US Treasury yields prompted some profit-taking in the US Dollar following its strong rally to a new year-to-date peak post-US elections.
- US President-elect Donald Trump's administration is expected to focus on tax cuts and raising tariffs, which could fuel inflation and limit the Federal Reserve's ability to cut rates.
- Several key Federal Open Market Committee (FOMC) members, including Fed Chair Jerome Powell, have recently suggested a cautious approach to rate cuts, which supports the US Dollar and weighs on the lower-yielding Yen.
- Japan's National Consumer Price Index (CPI) set for release on Friday will be a key data point for influencing JPY price movements, ahead of global PMI figures.
USD/JPY Needs to Break Below 154.00 for Bears to Gain Control
From a technical perspective, the USD/JPY pair's inability to sustain above the psychological 155.00 level on Monday, followed by a pullback, signals caution for bullish traders. However, the pair might continue to find support around the 153.85 region, bolstered by positive oscillators on the daily chart. A further sell-off could open the door for additional declines towards the 153.25 level, potentially testing the 153.00 mark and the next key support around the 152.70-152.65 zone. A decisive break below this level could expose the critical 200-day Simple Moving Average (SMA), now acting as support, which is currently near the 151.90-151.85 area.
On the upside, the 155.00 mark, followed by the swing high around 155.35, could serve as immediate resistance. A sustained move beyond this level would strengthen the near-term bullish outlook, potentially allowing the USD/JPY pair to surpass the 155.70 hurdle and target the 156.00 round figure. Momentum could then extend towards retesting the multi-month high of 156.75, reached last Friday.
