- The Japanese Yen remains depressed as Takaichi flags a looser fiscal goal, urges BoJ rate hike caution.
- A positive development to end the US government shutdown also undermines the safe-haven JPY.
- Dovish Fed expectations and economic concerns weigh on the USD and might cap the USD/JPY pair.
The Japanese Yen (JPY) attracts fresh sellers following the previous day’s two-way directionless price moved and drifts back closer to the lowest level since February 13, touched against its American counterpart the previous day. The Bank of Japan (BoJ) has been reluctant to commit to further interest rate hikes on the back of Japan’s Prime Minister Sanae Takaichi’s pro-stimulus stance. This, along with the optimism over a potential deal to end the US government shutdown, turns out to be a key factor that continues to undermine the safe-haven JPY.
Meanwhile, a summary of BoJ policymakers’ opinions at the October meeting released on Monday indicated a chance of a rate hike in December. Adding to this, speculation that Japanese authorities may step into the market to stem further weakness in the domestic currency might hold back the JPY bears from placing fresh bets. Moreover, dovish Federal Reserve (Fed) expectations and concerns about an economic fallout from the US government closure keep the US Dollar (USD) depressed, which might further cap gains for the USD/JPY pair.
Japanese Yen is undermined by receding safe-haven demand and BoJ uncertainty
- Takuji Aida – an economist chosen to join Premier Sanae Takaichi’s panel to debate her administration’s growth strategy – told the Nikkei newspaper that the Bank of Japan should avoid raising interest rates in December. Aida added that the central bank should wait at least until January next year as Japan’s economy likely contracted in the third quarter.
- The Japanese government is expected to finalise an economic stimulus package on November 21. According to a draft outline, the package will urge the BoJ to focus on achieving strong economic growth accompanied by stable prices, underscoring Prime Minister Sanae Takaichi’s preference for keeping interest rates low to support a fragile recovery.
- The US Senate voted to pass legislation to reopen the federal government and end the longest government shutdown in the nation’s history. The positive development triggers a fresh wave of the global risk-on trade, which, along with the BoJ rate hike uncertainties, continues to undermine the safe-haven Japanese Yen during the Asian session on Wednesday.
- Meanwhile, economists estimate that the prolonged US government closure might have already shaved approximately 1.5 to 2.0% off quarterly GDP growth. Moreover, investors seem tilted towards a more dovish US Federal Reserve and have been pricing in a greater chance of another rate cut in December. This, in turn, keeps the US Dollar depressed.
- In contrast, a summary of BoJ policymakers’ opinions at their October meeting released on Monday reflected a view that the time for another interest-rate hike is approaching. Adding to this, the risk of a government intervention to stem further JPY weakness warrants caution for bears, and before positioning for further upside for the USD/JPY pair.
- In the absence of any relevant market-moving US economic releases on Wednesday, traders will look forward to speeches from a slew of influential FOMC members for cues about the Fed’s future rate-cut path. This will drive the USD demand, which, along with the broader risk sentiment, should provide short-term impetus to the currency pair.
USD/JPY bulls need to wait for breakout through 154.45-154.50 supply zone
From a technical perspective, the USD/JPY bulls need to wait for a sustained strength beyond the 154.45-154.50 pivotal hurdle before placing fresh bets. Given that oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone, spot prices might then aim to conquer the 155.00 psychological mark. The momentum could extend further towards the 155.60-155.65 intermediate barrier en route to the 156.00 round figure.
On the flip side, any corrective pullback below the 154.00 mark could be seen as a buying opportunity near the overnight swing low, around the 153.65 region. This should help limit the downside for the USD/JPY pair near the 153.00 mark. A convincing break below, however, could pave the way for deeper losses and drag spot prices to the 152.15-152.10 region. The latter should now act as a strong near-term base for the currency pair, which, if broken decisively, might shift the near-term bias in favor of bearish traders.
