20 Nov 2024

The USD/JPY pair continues to recover from a low not seen in over a week, reflecting a reversal from the previous session. The Japanese Yen (JPY) is under pressure due to diminishing safe-haven demand and uncertainty surrounding the Bank of Japan's (BoJ) monetary policy. This situation provides some support for the US Dollar (USD) and the currency pair.

During the Asian trading session on Wednesday, the JPY is further weakened against the USD, allowing the USD/JPY pair to capitalize on the rebound observed the day before. Although concerns persist regarding the potential escalation of the Russia-Ukraine conflict, a reduction in fears of a nuclear confrontation has bolstered investor sentiment. Additionally, the ambiguity regarding the timing of the BoJ's next interest rate hike remains a significant factor contributing to the JPY's decline.

Furthermore, the economic policies anticipated from US President-elect Donald Trump are expected to stimulate growth and increase inflation, which may restrict the Federal Reserve's ability to lower interest rates. Concurrently, a decline in safe-haven demand has led to a rise in US Treasury bond yields, further strengthening the USD and providing additional support for the USD/JPY pair. However, concerns about potential intervention may deter aggressive bearish positions on the JPY, limiting significant upward movement for the currency pair. The JPY's decline is influenced by multiple factors, and intervention fears continue to impede its recovery.

In related news, Russian President Vladimir Putin approved modifications to the country's nuclear doctrine on Tuesday, shortly after US President Joe Biden permitted Ukraine to utilize long-range American missiles against military targets within Russia.

Russian Foreign Minister Sergei Lavrov stated that the nation would take all necessary measures to prevent the outbreak of a nuclear conflict, describing Germany's recent decision not to supply long-range missiles to Ukraine as a responsible stance. Concurrently, the White House announced that the United States does not intend to modify its nuclear posture in light of Russia's actions, which has subsequently reduced safe-haven demand and impacted the Japanese Yen negatively.

Earlier this week, Bank of Japan Governor Kazuo Ueda cautioned against maintaining excessively low borrowing costs and indicated the possibility of another interest rate hike, although he was noncommittal regarding the timing and did not provide any indications about a potential increase in December.

A report released by the Ministry of Finance on Wednesday revealed that Japan's total exports rose by 3.1%, while imports increased by 0.4% year-on-year in October, leading to a trade deficit of ¥461.2 billion.

Market participants have been bracing for a slight uptick in inflation following former President Donald Trump’s election victory, which was perceived as a significant catalyst for the recent surge in US Treasury bond yields.

Federal Reserve Bank of Kansas President Jeffrey Schmid remarked on Tuesday that substantial fiscal deficits are unlikely to trigger inflationary pressures, as the central bank is expected to mitigate such risks, although this may result in elevated interest rates.

The US Dollar is currently stabilizing after its recent decline from the year-to-date peak and remains near the weekly low, although the downside is somewhat supported by expectations of a more measured approach to easing by the Federal Reserve.

Upcoming speeches from several prominent members of the Federal Open Market Committee later on Wednesday are anticipated to affect USD price movements and provide momentum for the USD/JPY pair, particularly in the absence of significant US macroeconomic data.

USD/JPY seems poised to climb further and aim to retest multi-month high set last week

From a technical perspective, the USD/JPY pair's overnight strong rebound suggests that the recent corrective slide from a multi-month high has run its course. The subsequent move up, along with the positive oscillators on the daily chart, supports prospects for a further appreciating move for spot prices. Bulls, however, need to wait for a sustained strength above the 155.00 mark before placing fresh bets. 

Some follow-through buying beyond the weekly top, around the 155.35 area, will reaffirm the positive and lift the USD/JPY pair to the 155.70 intermediate hurdle en route to the 156.00 round-figure mark. The momentum could extend further towards retesting the multi-month top, around the 156.75 region touched last Friday.

On the flip side, the 154.40-154.35 area now seems to protect the immediate downside ahead of the 154.00 mark. Any further decline might continue to find decent support near the 153.30-153.25 region, or the overnight swing low. This is followed by the 153.00 round figure and the next relevant support near the 152.70-152.65 area, below which the pair could drop to the very important 200-day Simple Moving Average (SMA), around the 151.90-151.85 region