The Japanese Yen weakens as hopes for further Bank of Japan (BoJ) rate hikes diminish, while investors await the release of the FOMC minutes

The Japanese Yen (JPY) continues to weaken against the US Dollar (USD) on Wednesday, approaching its lowest level since August 16. Recent data revealed that Japan's real wages fell in August, ending two months of gains, while household spending also decreased. These developments raise concerns about the strength of private consumption and the sustainability of the economic recovery. Additionally, comments from Japan's new Prime Minister regarding monetary policy have intensified uncertainty about the Bank of Japan's (BoJ) plans for further rate hikes, adding pressure on the JPY.

The safe-haven appeal of the Yen is further diminished by news of a potential ceasefire between Hezbollah and Israel. Meanwhile, the US Dollar is nearing a seven-week high, supported by reduced expectations for aggressive policy easing by the Federal Reserve (Fed). This dynamic has propelled the USD/JPY pair above the mid-148.00s as it heads into the European session. However, concerns about potential intervention by Japanese authorities to support the domestic currency may limit further gains, especially with the FOMC meeting minutes set to be released later in the North American session.

Daily Digest Market Movers: The Japanese Yen nears a weekly low as traders reassess expectations for additional BoJ rate hikes

• Recent government data indicates a 0.6% decline in real wages and a 1.9% drop in household spending in August compared to the same month last year.
• Comments from Prime Minister Shigeru Ishiba suggesting that the current economic environment does not support further rate increases could hinder the BoJ's plans for upcoming months.
• As tensions escalate in the Middle East, Israeli forces have conducted new incursions into southern Lebanon. However, fears have eased somewhat following Hezbollah's indication that it may consider a negotiated ceasefire.
• Japan's Finance Minister, Katsunobu Kato, has stated that the government will monitor rapid currency fluctuations that could impact the economy and will act if necessary.
• The latest Reuters Tankan monthly poll shows that Japanese manufacturers have grown more optimistic about business conditions in October, with the sentiment index rising from 4 in September to 7 this month.
• However, concerns remain about the pace of China's economic recovery, and sentiment in the service sector has softened, reflecting the mixed economic conditions in Japan.
• The US Dollar maintains its position near a seven-week high, buoyed by decreasing odds for a more aggressive policy easing by the Federal Reserve, which has minimal influence on the USD/JPY pair.
• Traders are now focusing on the September FOMC meeting minutes for potential market direction, with the US Consumer Price Index and Producer Price Index scheduled for release on Thursday and Friday, respectively.

Technical Outlook: For the USD/JPY pair to establish bullish momentum, it must find acceptance above the 149.00 mark.

Technically, some dip-buying emerged on Tuesday following last week’s move above the 50-day Simple Moving Average (SMA) for the first time since mid-July, favoring bullish sentiment. The spot prices appear to have settled above the 148.00 mark, which coincides with the 38.2% Fibonacci retracement level of the July-September decline. Oscillators on the daily chart are gaining positive traction, indicating that the path of least resistance is upward.

Any further upward movement may encounter resistance near the 148.70 zone and the 149.00 round figure. Sustained buying beyond the weekly high of approximately 149.10-149.15 would reinforce the positive outlook and could allow the pair to challenge the 150.00 psychological mark.

On the downside, the overnight swing low near the 147.35-147.30 region is likely to provide immediate support ahead of the 147.00 level. A decisive break below this support could pull the USD/JPY pair down to the intermediate support at 146.45, with further declines targeting the 146.00-145.90 range and the 145.00 confluence support, which includes the 50-day SMA and the 23.6% Fibonacci level. A break below this level would suggest that the recent recovery from the mid-139.00s, or a 14-month low, has lost momentum, shifting the near-term bias in favor of bearish traders.