Japanese Yen Hits Lowest Level Since July as U.S. Dollar Gains Amid Fed and BoJ Policy Uncertainty
The Japanese Yen (JPY) struggled to maintain its modest intraday gains, dropping to its lowest level since late July against the U.S. Dollar (USD) during Tuesday’s Asian session. Growing market expectations that the Bank of Japan (BoJ) will avoid further interest rate hikes this year, coupled with political uncertainty surrounding Japan’s new leadership, have weighed heavily on the yen.
Adding to the yen’s weakness is the sharp rise in U.S. Treasury bond yields, which have reached their highest level in nearly three months. This, ahead of Japan’s general election on October 27, has further pressured the lower-yielding yen.
U.S. Dollar Maintains Strength Amid Fed Rate Cut Speculation
Meanwhile, the U.S. Dollar has continued to strengthen since the start of the month, buoyed by expectations that the Federal Reserve will adopt a cautious approach to rate cuts. This has attracted dip-buyers around the mid-150.00 levels in the USD/JPY pair. However, concerns that Japanese authorities may intervene to support the yen have prevented traders from placing heavy bearish bets on the currency.
Despite these fears, a softer risk environment has provided some temporary support to the safe-haven yen, capping major gains in the USD/JPY pair. Nevertheless, the overall market fundamentals continue to favor a bullish outlook for the U.S. Dollar.
Japanese Yen Under Pressure from Mixed Economic Signals
On Tuesday, the Japanese Yen attracted some attention from buyers amid speculation of potential government intervention, especially after breaching the critical 150.00 psychological level against the U.S. Dollar. Last Friday, Japan’s Vice Finance Minister for International Affairs, Atsushi Mimura, stressed that excess volatility in the foreign exchange market is undesirable, and authorities are closely monitoring the situation.
BoJ Governor Kazuo Ueda also signaled last week that the central bank is in no rush to raise interest rates further, citing the need to assess the economic impact of global instability. Additionally, dovish comments from Japan’s Prime Minister Shigeru Ishiba have created uncertainty over the new leadership’s stance on monetary policy, adding to the yen’s headwinds.
U.S. Dollar Strength Supported by Fed Rate Cut Outlook
On the other hand, the U.S. Dollar surged to its highest level since early August, as markets grow more confident that the Federal Reserve will take a gradual approach to rate cuts in 2024, given the U.S. economy’s relative strength. Several Fed officials, including Dallas Fed President Lorie Logan and Minneapolis Fed President Neel Kashkari, have expressed support for gradual rate cuts, while cautioning that quicker adjustments may be necessary if economic conditions shift.
Adding to the U.S. Dollar’s momentum, the yield on U.S. government bonds has soared, with the 2-year bond yield reaching its highest point since August 19, and the 10-year Treasury yield hitting its highest since July 26. These rising yields have further bolstered the dollar against the yen.
Technical Outlook: USD/JPY Set for Further Gains Beyond 151.60 Resistance Level
From a technical perspective, the USD/JPY pair appears poised to appreciate further, with immediate support near the 150.30-150.25 region and strong psychological support at the 150.00 mark. A break below this level could trigger a sharper decline towards the 149.60 support area. However, if bulls push the pair above the 151.00 level, it could advance toward 151.60 and eventually reclaim the 152.00 round figure. The momentum may extend to the 152.70 region and potentially reach the 153.00 mark.
