The Japanese yen is near a two-month low against the USD, pending the US CPI report

• The Japanese yen fell to a two-month low against the USD on Wednesday amid BoJ uncertainty.
• Growing bets on a regular 25 bps Fed rate cut move in November provide support to the USD and USD/JPY.
• JPY bulls appear unimpressed by Japan’s PPI print as focus remains glued to the US CPI report.

The Japanese yen (JPY) weakened broadly on Wednesday amid uncertainty over the Bank of Japan’s (BoJ) plans for further interest rate hikes. Apart from this, risk momentum has undermined demand for the safe-haven JPY, which, along with a fresh wave of US dollar (USD) buying, has pushed the USD/JPY pair to the 149.35 region, or the all-time high of then the middle of August.

Meanwhile, data released earlier this Thursday showed that Japan’s producer price index (PPI) was unchanged in September and the annual rate rose more than expected during the reported month. This in turn provides support for the JPY and caps the USD/JPY pair. Additionally, traders are choosing to sit on the sidelines ahead of the release of US consumer inflation numbers.

Daily Digest Market Movers: Japanese Yen Looks Vulnerable Amid Diminished Hopes for More BoJ Rate Hikes, USD Upbeat

• Data on Tuesday showed Japan’s real wages fell in August after two months of gains and a drop in household spending, raising doubts about the strength of private consumption and a sustained economic recovery.
• This comes on the back of Japanese Prime Minister Shigeru Ishiba’s blunt comments on monetary policy and fueling uncertainty over the Bank of Japan’s rate hike plans, which have hurt the Japanese yen and pushed the USD/JPY pair higher.
• The US dollar hit its highest level since August 16 after minutes from the FOMC’s September meeting revealed that a majority supported a 50 basis point rate cut as the committee was confident that inflation would move towards its target of 2%
• Some participants, however, indicated they would have preferred just a 25 bps rate cut, citing that inflation was still somewhat high while economic growth remained solid and unemployment remained low.
• In addition, there was broader agreement that the excessive interest rate cut would not lock the Federal Reserve into a specific pace for future interest rate cuts and should not be seen as a sign of a more negative economic outlook.
• Dallas Fed President Lorie Logan said Wednesday she favors lower rate cuts going forward because there are still real risks to rising inflation and pointed to significant uncertainties around the economic outlook.
• Separately, Boston Fed President Susan Collins stressed that policy is not on a set path and will remain carefully data-driven, and added that it will be important to maintain current healthy labor market conditions.
• In addition, San Francisco Fed President Mary Daly said the size of September’s rate cut did not say anything about the size of the next cuts, and that one or two more rate cuts this year were likely if the economy performed as she expected.
• According to CME Group’s FedWatch tool, market participants now have a better chance that the Fed will cut borrowing costs by 25 bps in November and a more than 20% chance that it will keep interest rates on hold.
• The yield on the rate-sensitive two-year U.S. Treasury note rose to its highest since Aug. 19, while the benchmark 10-year yield climbed for a sixth straight day on Wednesday to its highest level since July 31.
• A BoJ report showed on Thursday that Japan’s Producer Price Index (PPI) was unchanged in September, versus an expected 0.3% decline, while the annual rate unexpectedly rose from 2.6% in August at 2.8%.
• Investors are now awaiting the US Consumer Price Index (CPI) due later today, which, along with Friday’s US Producer Price Index, could influence market expectations of the Fed’s rate cut path and could lead the USD/JPY pair.

Technical Outlook: USD/JPY looks poised to appreciate further, bulls could look to retake the psychological 150.00 mark

From a technical perspective, the sustained overnight close above the 38.2% Fibonacci retracement level of the July-September decline and the 149.00 mark could be seen as a new trigger for bullish traders. Furthermore, the oscillators on the daily chart have gained positive traction and are far from overbought territory, suggesting that the path of least resistance for the USD/JPY pair is to the upside. Therefore, a further appreciation towards the 150.00 psychological mark en route to the 50% retracement level around the 150.75-150.80 region seems a distinct possibility.

On the other hand, any significant slip below the 149.00 level now seems to attract some buyers near the 148.70-148.65 region. This, in turn, should help limit downside for USD/JPY near the 148.00 round figure. The latter should act as a key pivot point which, if broken, could trigger some technical selling and drag spot prices to the intermediate support of 147.35 en route to the 147.00 mark and 146.50 area.