The Japanese yen remains on the back foot against the USD amid subdued bets for more BoJ rate hikes

• The Japanese yen is struggling to attract buyers amid uncertainty over future BoJ rate hikes.
• Hopes for a possible Hezbollah-Israel ceasefire are further undermining the safe-haven JPY.
• Intervention fears cap USD/JPY amid subdued USD demand ahead of FOMC minutes.

The Japanese yen (JPY) drew some intraday sellers on Tuesday in reaction to data that showed Japan’s real wages fell in August after two months of gains. In addition, household spending also fell during the reporting month, raising doubts about the strength of private consumption and a sustained economic recovery. This comes on top of direct comments from Japan’s new prime minister on monetary policy and fueling uncertainty over the Bank of Japan’s (BoJ) plans for further interest rate hikes. News of a possible Hezbollah-Israel ceasefire undermined demand for the safe-haven JPY and helped the USD/JPY pair stall its modest pullback from the August high reached on Monday.

However, renewed speculation that Japanese authorities may step in to support the domestic currency is preventing JPY bears from placing aggressive bets. Apart from this, subdued demand for the US dollar (USD) keeps a lid on any significant upside for the USD/JPY pair and leads to range-bound price action during the Asian session on Wednesday. Investors also seem reluctant and prefer to wait on the sidelines ahead of the release of the September FOMC meeting minutes later today. This, along with the US Consumer Price Index (CPI) and Producer Price Index (PPI) on Thursday and Friday respectively, will influence USD price dynamics and determine the next step of a directional move for the currency pair.

Daily Digest Market Movers: Japanese Yen Remains Defensive Amid BoJ Rate Hike Uncertainty

• Real wages in Japan – the world’s fourth-largest economy – fell 0.6 percent and household spending fell 1.9 percent in August from a year earlier, according to government data released Tuesday.
• That, along with comments from Japanese Prime Minister Shigeru Ishiba saying the country is not in an environment for more rate hikes, could derail the Bank of Japan’s rate hike plans in the coming months.
• Israeli forces made further incursions into southern Lebanon on Tuesday, raising the risk of full-scale war in the Middle East, although fears eased after Iran-backed Hezbollah left the door open to a negotiated ceasefire.
• Japan’s Finance Minister Katsunobu Kato said earlier this week that the government would monitor how the currency’s rapid movements could affect the economy and take action if necessary.
• The monthly Reuters Tankan survey showed on Wednesday that Japanese manufacturers became more confident about business conditions in October, with the sentiment index rising from 4 in September to 7 this month.
• The survey, however, indicated that Japanese manufacturers remained cautious about the pace of China’s economic recovery and sentiment in the services sector eased, reflecting erratic economic conditions in Japan.
• The US dollar is extending its price-consolidating move near a seven-week peak amid diminishing chances for more aggressive policy easing by the Federal Reserve and is not weighing heavily on the USD/JPY pair.
• Traders are now looking forward to the release of the September FOMC meeting minutes for some momentum ahead of the US Consumer Price Index and Producer Price Index on Thursday and Friday respectively.

Technical outlook: USD/JPY needs to break above 148.60 for bulls to take control in the near term

From a technical perspective, the appearance of some bearish buying on Tuesday comes on the back of last week’s move above the 50-day simple moving average (SMA) for the first time since mid-July and favors bullish traders. Additionally, spot prices now appear to have found support above the 148.00 level or the 38.2% Fibonacci retracement level from the July-September decline. This, coupled with the oscillators on the daily chart gaining positive traction, suggests that the path of least resistance for the USD/JPY pair is to the upside. However, any move higher could face some resistance near the 148.70 area before 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 pair to recover the psychological mark of 150.00.

On the other hand, the overnight swing around the 147.35-147.30 region now appears to protect the immediate decline ahead of the 147.00 mark. A convincing break below the latter could pull USD/JPY towards the 146.45 intermediate support en route to the 146.00-145.90 region and 145.00 confluence support. The latter comprises the 50-day SMA and 23.6% Fibo. level, which, if decisively broken, will suggest that the recent pullback from the vicinity of 139.00 or a 14-month low has run its course and turned the short-term trend in favor of bear traders.