Breakout through 50-day SMA favors bulls amid BoJ rate hike uncertainty

• USD/JPY hit a one-month high on Thursday and looks poised to appreciate further.
• A mix of factors is weighing on the JPY and it remains supportive amid a stronger USD.
• Borrowed geopolitical risks support safe JPY and cap the pair ahead of US data.

The USD/JPY pair rose for the third day in a row – also marking the fourth day of a positive move in the past five – and climbed to a one-month high around the 147.25 region on Thursday. The Japanese yen (JPY) is being undermined by new Prime Minister Shigeru Ishiba’s blunt comments on monetary policy, saying Japan is not in an environment for a further rate hike. Moreover, Japan’s new economy minister, Ryosei Akazawa, expects the Bank of Japan (BoJ) to make careful economic assessments when raising interest rates again. Adding to this, BoJ board member Asahi Noguchi said the central bank must patiently maintain loose monetary conditions and will make gradual adjustments while carefully assessing whether inflation is sustainably reaching the 2 percent target. This, along with political uncertainty ahead of the October 27 snap election, is putting further downward pressure on the JPY and contributing to the bid tone surrounding the currency pair amid sustained buying interest in the US dollar (USD).

Investors trimmed their bets on more aggressive policy easing by the Federal Reserve (Fed) amid upbeat US macro data that pointed to a still resilient US labor market. Automatic Data Processing (ADP) reported on Wednesday that private sector employers added 143,000 jobs in September, compared with expectations for an increase of 120,000 and an upwardly revised 103,000 from the previous month. On the back of Tuesday’s unexpected increase in August jobs, the data forced investors to reassess the likelihood of another 50 basis point cut at the November FOMC meeting and lifted the USD to a three-week high . Meanwhile, an Israeli strike in central Beirut, Lebanon earlier Thursday comes after Iran fired more than 180 ballistic missiles at Israel on Tuesday. This raises the risk of an all-out war in the Middle East, which helps limit losses in the JPY and caps the USD/JPY pair, warranting some caution before placing aggressive bullish bets and positioning for another near-term appreciation move .

Market participants are now eagerly awaiting the US economic file – which includes the release of weekly initial jobless claims and ISM services PMI. Apart from this, speeches by influential FOMC members will boost USD demand and produce short-term trading opportunities around USD/JPY later during the early North American session. The focus, however, will remain on the closely watched monthly US employment details popularly known as the Nonfarm Payrolls (NFP) report on Friday. However, the fundamental backdrop appears tilted in favor of the bulls and suggests that the path of least resistance for spot prices is up.

Technical perspectives

Technically, sustained overnight strength and a close above the 50-day simple moving average (SMA) for the first time since mid-July could be seen as a new trigger for the bulls. Moreover, the oscillators on the daily chart have just started to gain positive traction and validate the short-term positive outlook for the USD/JPY pair. Therefore, any further pullback could be seen as a buying opportunity near the 146.00 round figure, which should help limit the downside near the low point of the 50-day SMA resistance, currently near the 145 region ,40-145,35. This is followed by the psychological mark of 145.00, which, if decisively breached, will suggest that the recent good rebound from a 19-month low hit in September has run its course and turned the trend in favor of bear traders.

On the other hand, the 147.00 mark followed by the 147.25 area, or the one-month high, seems to act as an immediate obstacle now. Further upward movement could lift USD/JPY to the round figure of 148.00. The momentum could extend further towards the 148.55-148.60 region en route to the 149.00 mark and the August monthly high around the 149.40 area. Some further buying will set the stage for a move towards the recovery of the 150.00 psychological mark.

USD/JPY Daily Chart