Japanese Yen Hits Three-Month Low Amid Bank of Japan Rate-Hike Uncertainty
The Japanese Yen (JPY) plummeted to a fresh three-month low against the US Dollar (USD) during the Asian trading session on Monday. This drop follows a significant political shift in Japan, where the ruling coalition lost its parliamentary majority, raising concerns over the Bank of Japan’s (BoJ) ability to pursue further interest rate hikes. Combined with a generally positive risk tone in global markets, the JPY’s safe-haven appeal weakened, while strong US Dollar buying pushed the USD/JPY pair closer to the critical 154.00 level.
US Economy Remains Resilient Amid Fed Rate Speculation
US economic data continues to show resilience, reinforcing market expectations that the Federal Reserve (Fed) may adopt smaller rate cuts in the near term. Additionally, the possibility of Donald Trump winning the upcoming US presidential election, along with concerns over deficit spending, has fueled a surge in US Treasury bond yields. As a result, the US Dollar climbed to its highest level since July, further driving investors away from the lower-yielding Japanese Yen.
Political Developments and Impact on Japanese Yen
In Japan’s recent election, the ruling Liberal Democratic Party (LDP) and coalition partner Komeito secured only 215 out of 465 seats in the lower house of parliament—falling short of the 233 needed for a majority. This marks the first time since 2009 that the coalition has lost its majority, casting uncertainty over future monetary policy decisions by the BoJ. This political outcome contributed to a bearish opening for the JPY at the start of the week.
Global Factors Influencing USD/JPY Movement
The US bond market experienced a significant sell-off, driven by market speculation that the fiscal plans of both Vice President Kamala Harris and Republican nominee Donald Trump would increase the deficit. The benchmark 10-year US government bond yield remains near a three-month high, further bolstering the USD and pulling capital flows away from the Japanese Yen.
Geopolitical factors are also in play, with Israel conducting precision strikes on military targets in Iran over the weekend in response to Iran’s earlier missile attacks. However, Iran has signaled a potential ceasefire agreement in Gaza and Lebanon, calming concerns over an escalation in the Middle East.
In China, Vice Minister of Finance Liao Min announced plans to implement countercyclical macroeconomic adjustments to support economic recovery in Q4, with confidence in reaching a 5% growth target for the year.
Technical Outlook: USD/JPY Eyes 154.00 and Beyond
From a technical perspective, the USD/JPY pair’s breakout above the 200-day Simple Moving Average (SMA) and the 61.8% Fibonacci retracement level of the July-September decline suggests a bullish trend. This strengthens the near-term outlook for further gains beyond the 154.00 level, potentially targeting the 154.35-154.40 resistance zone. A sustained rally could see the pair test the 155.00 psychological barrier, with further momentum toward the late July high of 155.20.
However, traders should exercise caution as the Relative Strength Index (RSI) on the daily chart is approaching overbought levels, indicating the possibility of a short-term consolidation or pullback. Any corrective movement is likely to find strong support near the 153.20-153.15 area, with further support around 153.00 and 152.75.
