Japanese Yen extends its consolidative price move against USD amid mixed cues

The Japanese Yen struggles to capitalize on its modest intraday bounce against the USD.
Trump-related tariff fears and elevated US bond yields undermine the lower-yielding JPY.
Traders now look to Fed speakers and important economic data releases for a fresh impetus.

The Japanese Yen (JPY) struggles to gain any meaningful traction and seesaws between tepid gains/minor losses against its American counterpart heading into the European session on Tuesday. Market participants now seem convinced that Japan's political landscape could make it difficult for the Bank of Japan (BoJ) to tighten its monetary policy further. Moreover, the BoJ Summary of Opinions from the October meeting revealed that policymakers were split on whether to raise interest rates again.

Meanwhile, expectations that US President-elect Donald Trump's policies could put upward pressure on inflation, and limit the Federal Reserve's (Fed) scope to ease policy, remain supportive of elevated US Treasury bond yields. This turns out to be another factor that undermines the lower-yielding JPY and lifts the US Dollar (USD) to its highest level since early July. That said, fears that Japanese authorities might intervene in the markets to prop up the domestic currency could limit the JPY losses.

Japanese Yen bulls remain on the sidelines, fail to gain any respite from intervention fears

Japan's political landscape raised doubts about the Bank of Japan's ability to hike interest rates again and the speculations were further fueled by the Summary of Opinions from the October meeting released on Monday.
According to Kyodo News, Japanese Prime Minister Shigeru Ishiba is arranging his first summit with Chinese President Xi Jinping on the sidelines of the Asia-Pacific Economic Cooperation forum summit in mid-November.
Japanese PM Ishiba said on Monday that the government planned to meet with business and labor union representatives later this month to discuss next year’s annual wage negotiations.
The tariffs promised by US President-elect Donald Trump could strain Japanese firms, which export heavily to the US, and potentially impact economic growth, creating another hurdle for the BoJ's rate-hike plans.
Minneapolis Fed President Neel Kashkari said on Sunday that the central bank wants to have confidence and needs to see more evidence that inflation will go back to the 2% target before deciding on further interest rate cuts.
Investors now seem convinced that Trump's expected policy measures would spur economic growth and boost inflation, restricting the Federal Reserve from easing its monetary policy more aggressively.
The US Treasury bond yields hold steady below the post-US election swing high and the US Dollar remains close to its highest level since early July touched on Monday, offering some support to the USD/JPY pair.
A slew of influential FOMC members are scheduled to speak this week, including Fed Chair Jerome Powell, which, along with the US consumer inflation figures, should offer cues about the US central bank's rate-cut path.
This week's economic docket also features the release of the Prelim Q3 GDP print from Japan and the US monthly Retail Sales figures on Friday, which might contribute to providing a fresh impetus to the USD/JPY pair.

USD/JPY needs to find acceptance above 154.00 to support prospects for further gains

From a technical perspective, the recent breakout above the 200-day Simple Moving Average (SMA) and the overnight close above the 61.8% Fibonacci retracement level of the July-September downfall favors bullish traders. Moreover, oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone, validating the near-term positive outlook for the USD/JPY pair. Hence, a subsequent move up back towards challenging a multi-month top, around the 154.70 area, looks like a distinct possibility. This is closely followed by the 155.00 psychological mark, above which spot prices could accelerate the momentum towards the 155.65-155.70 intermediate resistance en route to the 156.00 round figure.

On the flip side, the 61.8% Fibo. resistance breakpoint, around the 153.35 region, now seems to protect the immediate downside ahead of the 153.00 mark and the 152.70-152.65 horizontal support. Any further corrective decline might still be seen as a buying opportunity near the 152.00 mark and remain limited near the 200-day SMA. The latter is currently pegged around the 151.75 region and is followed by last week's swing low, around the 151.25 area. A convincing break below the latter might prompt some technical selling and drag the USD/JPY pair further below the 151.00 round figure, towards the 150.35-150.30 intermediate support en route to the 150.00 psychological mark.

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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