Japanese yen strengthens against USD, further recovery from Friday’s two-month low

• The Japanese yen draws buyers for a second straight day amid renewed intervention fears.
• Geopolitical tensions continue to benefit the safe JPY and put pressure on the USD/JPY pair.
• Uncertainty about a BoJ rate hike could limit gains for the JPY ahead of Japan’s snap general election.

The Japanese Yen (JPY) remains on top against its US counterpart for the second day in a row on Tuesday and drags the USD/JPY pair from the August 16 high reached the previous day. Overnight comments from Japanese officials revived fears of intervention and proved to be a key factor supporting the JPY. This, along with the risk of further escalation of geopolitical tensions in the Middle East, is driving some safe-haven flows to the JPY.

That said, declining odds of another Bank of Japan (BoJ) rate hike in 2024 could hamper aggressive JPY bull bets. Meanwhile, Friday’s upbeat US jobs report forced investors to cut bets on another excessive interest rate cut by the Federal Reserve (Fed) in November, allowing the US dollar (USD) to hold close for a peak of seven weeks. This, in turn, could continue to provide support for the USD/JPY pair and limit any further slippage.

Daily Digest Market Movers: Japanese yen bulls may refrain from placing aggressive bets amid BoJ rate hike uncertainty

• Japan’s Vice Finance Minister for International Affairs Atsushi Mimura warned against speculative moves in the currency market, fueling speculation that the government could step in to support the Japanese yen.
• In addition, Japan’s new Finance Minister Katsunobu Kato said the government would monitor how the currency’s rapid movements could affect the economy and take action if necessary.
• In addition, fears that tensions in the Middle East could turn into a wider conflict, driving refuge flows to the JPY and pulling the USD/JPY pair from its August 16 high hit Monday.
• In the latest developments, Lebanon’s Hezbollah fired rockets at Israel’s port city of Haifa and a military base near the central city of Tel Aviv, while Israel bombed several buildings in the southern suburbs of Beirut.
• Recent comments by Japanese Prime Minister Shigeru Ishiba, saying the country is not in an environment for more rate hikes, have raised doubts about the Bank of Japan’s ability to tighten further in the coming months.
• This, along with the uncertainty surrounding the Japanese general election on October 27, could act as a headwind for the JPY and provide support to the USD/JPY pair amid a near-term bullish tone around the US dollar.
• Amid dovish remarks from Federal Reserve Chairman Jerome Powell, the upbeat US jobs report dashed hopes for more aggressive policy easing and kept USD bulls near a multi-week high.
• Traders are now eagerly awaiting the release of FOMC minutes on Wednesday and key US inflation data – consumer inflation figures and the Producer Price Index (PPI) on Thursday and Friday respectively.

Technical Outlook: USD/JPY setup favors bulls and supports prospects for bearish buying at lower levels

Technically, last week’s break above the 50-day simple moving average (SMA) for the first time since mid-July, and the subsequent move beyond the 38.2% Fibonacci retracement level of the July drop- September were seen as fresh. bull triggers. Furthermore, the oscillators on the daily chart have gained positive traction and suggest that the path of least resistance for the USD/JPY pair is to the upside. Therefore, any further slippage could still be seen as a buying opportunity and is more likely to remain cushioned near the 147.00 level, which should now act as a pivotal point.

On the other hand, a sustained move back above the 148.00 mark could prompt some technical buying and lift USD/JPY to the 148.70 resistance area on the way to the 149.00 round figure. Some further buying beyond the weekly peak around the 149.10-149.15 region will reaffirm the positive outlook and allow the bulls to recover the psychological mark of 150.00.