Japanese Yen remains on the front foot against softer USD; lacks bullish conviction

The Japanese Yen (JPY) struggles to capitalize on its modest Asian session gains against a softer US Dollar (USD) as bulls seem reluctant to place aggressive bets amid the Bank of Japan (BoJ) rate hike uncertainty. Investors remain worried that the BoJ could resist early tightening on the back of expectations that Japan’s new Prime Minister Sanae Takaichi will pursue aggressive fiscal spending plans. This, along with a generally positive risk tone, keeps a lid on any meaningful appreciating move for the safe-haven JPY.

Meanwhile, minutes of the BoJ’s September meeting on Wednesday kept hopes alive for an imminent rate hike. This, along with speculations that Japanese authorities could intervene to stem further weakness in the domestic currency, supports the JPY. The USD, on the other hand, trades with a negative bias amid economic concerns stemming from the US government shutdown, and also weighs on the USD/JPY pair. However, the US Federal Reserve’s (Fed) hawkish tilt could limit losses for the buck and the currency pair.

Japanese Yen bulls seem non-committed amid expectations that fiscal concerns could delay BoJ rate hike

• Minutes of the Bank of Japan’s September 18-19 meeting highlighted a cautious rate-hike path as policymakers weighed inflation dynamics and trade risks. Board members, however, said that the central bank may be able to return to a monetary policy stance of raising interest rates, as the BoJ’s 2% price stability target has been more or less achieved.
• Japan’s Vice Finance Minister for International Affairs and top foreign exchange official, Atsushi Mimura, said on Wednesday that the recent JPY moves deviate from the fundamentals. Mimura added that JPY long positions have been shrinking as there is some speculation in the market about Japan’s macroeconomic policies, especially fiscal policy.
• Meanwhile, Japan’s new Prime Minister, Sanae Takaichi, has a pro-stimulus stance, advocating significant fiscal spending to tackle inflation and boost the economy. Moreover, the BoJ remains reluctant to commit to further rate hikes, which might hold back the Japanese Yen bulls from placing aggressive bets and positioning for strong gains.
• The US Dollar shot to its highest level since late May the previous day and remains well supported by reduced bets for another interest rate cut by the US Federal Reserve in December. Moreover, the upbeat US macro data provided an additional boost to the USD and contributed to the USD/JPY pair’s intraday recovery from sub-153.00 levels.
• Automatic Data Processing (ADP) reported that private sector employment in the US rose by 42K in October, compared to 25K estimated and a 29K decrease recorded in the previous month. Adding to this, the Institute for Supply Management’s (ISM) Non-Manufacturing Purchasing Managers’ Index rose to an eight-month high in October.
• However, the longest US government shutdown in history has caused a blackout of official data, clouding the economic outlook. The US government closure enters its 36th day with no resolution in sight. Economists warn that the longer the impasse drags on, the higher the risk that the fragile economy could shift from bending to breaking.
• This, in turn, is holding back the USD bulls from placing fresh bets and exerting some downward pressure on the USD/JPY pair during the Asian session on Thursday. Traders now look forward to speeches from a slew of influential FOMC members for cues about the future rate-cut path, which should provide a short-term impetus later today.

USD/JPY once again fails near 154.40-154.45 pivotal hurdle; bullish potential seems intact

The USD/JPY pair has been facing stiff resistance near the 154.40-154.45 region over the past week or so. The said area should now act as a key pivotal point, above which spot prices could aim to reclaim the 155.00 psychological mark. Some follow-through buying should pave the way for a move towards the 155.60-155.65 hurdle before spot prices climb further towards the 156.00 round figure.

On the flip side, the 153.65 area could offer some support ahead of the overnight swing low, around the 153.00-152.95 region. Acceptance below the 153.00 mark might prompt some technical selling and make the USD/JPY pair vulnerable to accelerate the corrective fall towards the 152.55-152.50 intermediate support en route to the 152.00 round figure and last week’s swing low, around the 151.55 zone.