Japanese Yen traders remain on the sidelines ahead of Japan's general election on Sunday

The Japanese Yen stalls the overnight recovery move from a multi-month low amid BoJ uncertainty.
Mixed Tokyo consumer inflation figures and a positive risk tone also undermine the safe-haven JPY.
Bets for less aggressive Fed easing revive the USD demand and offer some support to the USD/JPY.

The Japanese Yen (JPY) struggles to capitalize on a modest intraday uptick against its American counterpart and for now, seems to have stalled its recovery move from the lowest level since July, around the 153.20 area touched earlier this week. Data released on Thursday showed business activity in Japan's manufacturing and services sectors contracted in October. Adding to this, a fall in Tokyo’s core inflation rate below the Bank of Japan’s (BoJ) 2% target tempers expectations about any further rate hike in 2024 and exerts some pressure on the JPY.

Apart from this, the political uncertainty ahead of Japan's general election on Sunday, along with a generally positive risk tone, turn out to be other factors undermining demand for the safe-haven JPY. Furthermore, the emergence of some US Dollar (USD) dip-buying, bolstered by bets for smaller rate cuts by the Federal Reserve (Fed), lifts the USD/JPY pair closer to the 152.00 mark heading into the European session. That said, the recent verbal intervention by Japanese authorities hold back the JPY bears from placing fresh bets and cap the currency pair.

Daily Digest Market Movers: Japanese Yen bulls remain on the sidelines amid mixed fundamental cues

The Statistics Bureau of Japan reported this Friday that the headline Tokyo Consumer Price Index (CPI) rose by the 1.8% YoY rate in October as compared to 2.2% in the previous month.
Further details revealed that Core CPI, which excludes volatile fresh food prices, grew 1.8% in October, down from 2% in the prior month but slightly above market expectations of 1.7%.
A core reading that excludes both fresh food and energy prices, rose from 1.6% in September to 1.8% during the reported month, still below the Bank of Japan's 2% target.
This follows a private-sector survey on Thursday, which showed that business activity in Japan's manufacturing and services sectors contracted in October, and points to weak economic conditions.
This adds to the election-related uncertainty in Japan and raises doubts over the BoJ's ability to hike interest rates further this year, and is seen weighing on the Japanese Yen on Friday.
Japan's Economy Minister Ryosei Akazawa said that it is important for currencies to move in a stable manner reflecting fundamentals and that a weak yen has various impacts on the economy.
Japan's vice finance minister for international affairs, Atsushi Mimura, said earlier this month that excess volatility in FX market is undesirable and that authorities are closely watching FX moves.
The US Dollar stalls the previous day's pullback from a three-month high amid bets for a less aggressive policy easing by the Federal Reserve and offers support to the USD/JPY pair.
Friday's US macro data – Durable Goods Orders and the revised Michigan Consumer Sentiment Index – might provide some impetus as investors await Japan’s election on Sunday.

Technical Outlook: USD/JPY shows some resilience below mid-151.00s, bullish potential seems intact

From a technical perspective, weakness below the 151.60-151.55 area could drag the USD/JPY pair to the 151.00 mark. Any further decline is likely to find decent support around the 150.65 confluence resistance breakpoint, comprising the 200-day Simple Moving Average (SMA) and the 50% Fibonacci retracement level of the July-September downfall. The latter should act as a key pivotal point, which if broken decisively will suggest that the recent rally since the beginning of this month has run out of steam and shift the bias in favor of bearish traders.

On the flip side, momentum beyond the 152.00 mark could extend further towards the 152.60-152.65 region. Some follow-through buying should allow the USD/JPY pair to reclaim the 153.00 round figure. The latter is closely followed by the 61.8% Fibo. level, around the 153.20 area, which if cleared should pave the way for additional gains towards the 154.00 mark and the 154.30 supply zone.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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