Japanese Yen consolidates above 149.00 handle against US Dollar in strong Monday session

• Japanese Yen strengthens (USD/JPY lower) on Nikkei report. 
• The week ahead includes key meetings of the Bank of Japan and the Federal Reserve.
• USD/JPY falls 100 pips on BoJ yield curve rumor.

The Japanese Yen (JPY) gained significantly against the US Dollar on Monday and is moving sideways late in the session near 149.08. The USD/JPY crashed after Nikkei Asia reported that the Bank of Japan is prepared to adjust its Yield Curve Control (YCC) framework to allow the yield on the 10-year Japanese government bond to rise above 1%. Anonymous sources told the news organization that central bank officials view it as necessary since the Federal Reserve's higher interest rate framework was already pushing Japanese government bond yields in that direction.

The USD/JPY sank suddenly in the US morning session from 149.80 to a session low of 148.81. The pair later recovered and has been bouncing off the 149.00 well into the afternoon.

The BoJ is not expected to raise interest rates, but with inflation running above its 2.0% target, adjusting its YCC mechanism is another way of supporting the Yen.

For USD/JPY, the Fed’s November 1 policy meeting, on Wednesday, will also have an impact. The Fed is unlikely to change interest rates – there is only a 1.4% chance of a rate hike of 0.25% according to the CME Fedwatch tool, which uses Fed Funds Futures as a gauge of market expectations.  

Daily digest market movers: Inflation expectations will be key in week ahead

• The BoJ policy meeting on Tuesday, October 31, will be the key market mover for the Yen this week. 
• Traders will be mainly focused on the BoJ’s inflation forecast 
• If the BoJ forecasts higher inflation in 2024, it might decide to tweak the YCC mechanism, which maintains 10-year JGB yields below 1.0%. If controls are relaxed to provide some tightening to the economy, this could support the Yen and be negative for USD/JPY. 
• The yield on the 10-year Japanese Government Bond (JGB) slipped to 0.876% on Friday. 
• The Fed’s November 1 policy meeting will be another key event for USD/JPY. A rise in interest rates is not predicted, but the focus will instead focus on what Federal Reserve Chairman Jerome Powell says in his press conference after the delivery of the official announcement. 
• If Powell emphasizes the likelihood that the policy rate could rise in the future or remain ‘higher for longer’ the market may buy the US Dollar, pushing USD/JPY back up. 
• Inflation pressures may be easing more than the data reflects, however, according to Stephen Schwarzman, the CEO and co-founder of investment fund Blackstone, who argues he is seeing input costs – the cost of making stuff – in the companies in his portfolio increase 0% in Q3. This runs counter to the ‘hot inflation' argument. 
• Schwarzman added companies are making more profits off lower sales for lower base costs. He added that “A third of CPI is shelter. A year ago, that was running at 12-13%, not its 1% – but the Fed averages the numbers. If you take that together inflation is actually lower than the numbers are saying.” 
• If Schwarzman’s views are true for the wider US economy, then the Fed may actually take a more dovish line than expected, leading to a fall in the US Dollar. 
• The BoJ is expected to forecast inflation in Japan in 2024 to rise to 2.2% from 1.9% previously. 
• USD/JPY rose to a new 12-month high last week after Tokyo inflation data for October, released last Friday – and widely seen as a leading indicator for Japan-wide inflation – came out higher than experts had expected. 

Japanese Yen technical analysis: Trading around key trendline

USD/JPY, which is trading in the 149.70s at the time of writing, remains stuck below the key 150 psychological and purported ‘intervention’ threshold. 

The bias remains to the upside, with the next major target at the 152.00 highs achieved in October 2022. A re-break above last Thursday’s highs of 150.80 would provide fresh confirmation of a continued advance. 

US Dollar vs Japanese Yen: 4-hour Chart

The pair has broken below a key trendline on the 4-hour chart, however, the break was not definitive and price has recovered on Monday back above the trendline. It would require a re-break below the 149.28 lows to confirm the break. Such a move would also confirm a reversal of peaks and troughs on the 4-hour chart, widely used to assess the short-term trend. The break of the trendline combined with the reversal in peaks and troughs would change the short-term trend to bearish. 

Breakouts from channels are expected to fall at least a Fibonacci 61.8% of the height of the channel, which gives a minimum downside target of 147.58. 

US Dollar vs Japanese Yen: Daily Chart

The 50-day Simple Moving Average (SMA) at 148.24 will provide a tough level of support for bears to try to break through and 148.74 could also potentially provide a stopping point on the way down.

(This story was corrected on October 31 at 07:29 GMT to say that the USD/JPY pair fell 100 pips, not 100 basis points.)