27 Nov 2024

• The Japanese Yen draws haven flows as concerns over Trump’s tariff plans offset BoJ uncertainty. 
• The USD struggles to lure buyers and drags the USD/JPY pair to a three-week low on Wednesday.
• Traders now look to the prelim US Q3 GDP print and the US PCE Price Index for a fresh impetus
• The Japanese Yen (JPY) continues its steady rise throughout the day, pulling the USD/JPY pair down to the 152.20 level, marking a three-week low as the European session approaches on Wednesday, influenced by a lackluster performance of the US Dollar (USD). The tariff threats from US President-elect Donald Trump, coupled with the escalating Russia-Ukraine conflict, are significant factors driving investors towards the safe-haven JPY.
  
  However, concerns regarding the Bank of Japan's (BoJ) capacity to further increase interest rates amid growing domestic political instability may pose challenges for the JPY. Additionally, the optimism surrounding a ceasefire agreement between Israel and Hezbollah, along with a rise in US Treasury bond yields, could limit the appeal of the lower-yielding JPY as key US economic data is anticipated.
• Japanese Yen buying interest remains strong amid concerns over trade wars.
  
  Fears that tariffs proposed by US President-elect Donald Trump could instigate trade conflicts and adversely affect the global economy are driving safe-haven investments into the Japanese Yen. The nomination of Scott Bessent as US Treasury Secretary offered some relief to US bond investors, resulting in the benchmark 10-year US Treasury yield dropping to a two-week low on Monday.
  
  Recent data released on Tuesday indicated a rise in service-sector inflation in Japan, suggesting the possibility of another rate hike by the Bank of Japan during its upcoming policy meeting in December. Japanese Prime Minister Shigeru Ishiba announced on Tuesday his intention to urge companies to implement substantial wage increases during the annual "Shuntō" negotiations next spring.
  
  The minutes from the November FOMC meeting indicated that the Committee might consider pausing its policy rate cuts and maintaining a restrictive stance if inflation remains high. Officials expressed optimism that inflation is subsiding and the labor market remains robust, which could enable the Federal Reserve to gradually reduce rates further.
  
  According to the CME Group's FedWatch Tool, traders are currently estimating a 63% likelihood that the Fed will decrease borrowing costs by 25 basis points in December. The US Dollar is struggling to gain significant momentum, remaining near the weekly low reached on Tuesday, which adds pressure to the USD/JPY pair.
  
  In geopolitical news, the Lebanon-based Hezbollah militant group reported launching drones towards Israel on Tuesday night, prompting Israeli airstrikes on southern Beirut. Shortly thereafter, US President Joe Biden announced that Lebanon and Israel have reached a ceasefire agreement, effective from 02:00 GMT this Wednesday.
  
  Traders are now anticipating the first revision of the US Q3 GDP figures and the US Personal Consumption Expenditure (PCE) Price Index for potential market direction. Attention will then turn to a series of Japanese macroeconomic data, including the Core CPI report from Tokyo.

• USD/JPY could accelerate the fall once the 152.00 pivotal support is broken

  From a technical standpoint, the recent close below the 100-period Simple Moving Average (SMA) on the 4-hour chart, coupled with the subsequent decline, suggests a favorable environment for bearish traders. Additionally, oscillators on the daily chart have begun to show negative momentum, reinforcing the likelihood of further depreciation in the USD/JPY pair. Consequently, a continuation of weakness towards the significant 200-day SMA, currently situated around the 152.00 level, appears to be a strong possibility. A decisive break below this level could lead to a test of the monthly swing low, which is located in the 151.30-151.25 range.
  
  Conversely, the 153.00 level may now serve as an immediate resistance point, followed by the 153.25-153.30 area. If the price manages to maintain strength beyond this resistance, it could initiate a short-covering rally, enabling the USD/JPY pair to regain the 154.00 level. This upward movement could potentially extend towards the 154.60 intermediate resistance, paving the way to the psychological 155.00 mark and the subsequent resistance near the 155.35-155.40 region.