- The Japanese Yen ticks higher against the USD, though remains close to over a two-month low.
- The BoJ rate-hike uncertainty and the upbeat market mood cap gains for the safe-haven JPY.
- Bets for smaller interest rate cuts by the Fed underpin the USD and favor the USD/JPY bulls.
The Japanese Yen (JPY) remains on the front foot against its American counterpart on Tuesday, albeit it lacks follow-through buying and remains close to the lowest level since early August touched the previous day. Any meaningful upside for the JPY, however, still seems elusive in the wake of the uncertainty over the Bank of Japan's (BoJ) rate-hike plans. This, along with a generally positive risk tone, should keep a lid on the safe-haven JPY.
Meanwhile, expectations for a less aggressive policy easing by the Federal Reserve (Fed) and rising bets for a regular 25 basis points (bps) rate cut in November keep the US Treasury bond yields elevated. This assists the US Dollar (USD) to stand tall near a two-month peak and contributes to capping the upside for the lower-yielding JPY. Hence, any subsequent slide in the USD/JPY pair might still be seen as a buying opportunity and remain limited.
Daily Digest Market Movers: Japanese Yen struggles to attract any meaningful buyers amid BoJ rate uncertainty, risk-on mood
- Japanese Prime Minister Shigeru Ishiba's recent comments successfully pushed back market expectations for any further interest rate increases by the Bank of Japan (BoJ) in the near term.
- US equity indices carried forward the upward momentum on Monday, with the S&P 500 and the Dow Jones Industrial Average hitting new record highs amid hopes for solid earnings.
- The US Dollar built on its recent gains registered over the past two weeks or so and shot to its highest level since August 8 amid bets for smaller interest rate cuts by the Federal Reserve.
- Minneapolis Fed President Neel Kashkari said on Monday that the recent jobs data shows labor market isn't weakening and the path of policy to be driven by data, the economy's performance.
- Separately, Fed Governor Christopher Waller noted the US central bank should proceed with more caution on interest rate cuts than was needed at the September policy meeting.
- According to the CME Group's FedWatch Tool, traders are pricing in a greater chance of a regular 25 basis points rate reduction in November and over a 15% probability of a no-cut.
- A quick increase in 10-year US government bond yields over the last few weeks to levels beyond the 4% threshold favors the USD bulls and should cap the low-yielding Japanese Yen.
- Traders now look to the release of the Empire State Manufacturing Index for some impetus later during the North American session ahead of speeches by influential FOMC members.
Technical Outlook: USD/JPY bullish potential seems intact, dips to the 149.00 mark could be seen as buying opportunity
From a technical perspective, any further slide is more likely to attract dip-buying near the 149.00 mark. This might help limit the downside for the USD/JPY pair near the 148.55-148.50 region. The latter is likely to act as a key pivotal point, which if broken might prompt aggressive selling and drag spot prices below the 148.00 round figure, towards last week's swing low, around the 147.35-147.30 area.
On the flip side, sustained strength and acceptance above the 150.00 psychological mark will be seen as a fresh trigger for bullish traders. Given that oscillators on the daily chart are holding in positive territory and are still away from being in the overbought zone, the USD/JPY pair might then aim to challenge the August monthly swing high, around the 150.85-150.90 region. Some follow-through buying beyond the 151.00 round figure will suggest that spot prices have bottomed out and pave the way for a further near-term appreciating move.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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