31 Oct 2024

The Japanese Yen experienced an upward movement following the Bank of Japan's decision to maintain its current policy settings.

However, the ambiguity surrounding potential future rate increases by the BoJ is likely to limit any additional appreciation of the Yen.

Market participants are now anticipating the upcoming release of the US PCE Price Index for new momentum.

The Japanese Yen (JPY) is currently performing well against the US Dollar (USD) following the initial comments made by Bank of Japan Governor Kazuo Ueda during the post-meeting press conference. Additionally, a downturn in the equity markets has contributed to an increased demand for safe-haven assets. This situation, combined with a lack of significant buying interest in the US Dollar, has resulted in the USD/JPY pair remaining below the 153.00 threshold as the European session approaches.

However, any substantial appreciation of the JPY appears unlikely due to ongoing uncertainty regarding the Bank of Japan's plans for interest rate hikes, which has been exacerbated by recent political instability following Japan's snap election on Sunday. Furthermore, an anticipated increase in US Treasury bond yields, driven by expectations of smaller rate cuts from the Federal Reserve and concerns over deficit spending in the wake of the US election, is likely to limit the potential for the lower-yielding JPY ahead of the release of the US Personal Consumption Expenditure (PCE) Price Index.

Daily Digest Market Movers: Japanese Yen builds on the post-BoJ move-up amid subdued USD demand

• The Bank of Japan has opted to maintain its current monetary policy settings amidst unusual political instability following the recent snap election, which resulted in the Liberal Democratic Party losing its majority for the first time in 15 years. In its monetary policy statement, the central bank reaffirmed its commitment to raising interest rates should economic conditions and inflation align with forecasts, thereby providing a slight boost to the Japanese Yen.
  
  During the press conference following the meeting, BoJ Governor Kazuo Ueda acknowledged the significant uncertainties surrounding Japan's economic landscape and inflation, indicating that a potential interest rate increase could be considered at the December meeting.
  
  Recent government data released on Thursday indicated a rebound in Japan's Industrial Production, which rose by 1.4% in September after a 3.3% decline in August. The report also suggested that companies anticipate an 8.3% increase in production for October.
  
  In a separate report, Retail Sales showed a 0.5% year-on-year increase in September, a notable slowdown from the 3.1% rise observed in the previous month, signaling a potential decline in consumer spending momentum.
  
  The US Dollar has seen some buying interest, recovering part of the previous day's modest losses, influenced by mixed economic data, which keeps the USD/JPY pair near its highest level since July 31, reached earlier this week.
  
  The Automatic Data Processing (ADP) reported on Wednesday that private sector employers added 233,000 jobs in October, exceeding the upwardly revised figure of 159,000 from the previous month and surpassing optimistic forecasts. This employment growth is anticipated to enhance consumer spending and contribute to overall economic expansion, reinforcing the belief that the economy remains robust and that the Federal Reserve may implement smaller rate cuts.
  
  Additionally, the initial estimate from the US Bureau of Economic Analysis indicated that the economy expanded at an annualized rate of 2.8% in the third quarter, a deceleration from the 3% growth recorded previously.

• Technical Outlook: USD/JPY could now extend the corrective decline, 152.00 mark holds the key for bulls

  From a technical perspective, the recent repeated failures to find acceptance beyond the 61.8% Fibonacci retracement level of the July-September downfall warrant some caution for bulls. Moreover, the Relative Strength Index (RSI) on the daily chart is on the verge of breaking into the overbought zone. This further makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for additional gains. 

  Some follow-through selling could drag the USD/JPY pair to the 152.00 mark en route to the 151.45 support and the 151.00 mark. The downward trajectory could extend further towards challenging the 150.65 confluence resistance breakpoint, which should now act as a key pivotal point and a strong base for spot prices.

  On the flip side, the 153.85-153.90 region now seems to have emerged as an immediate strong barrier. A sustained strength beyond, leading to a breakout through the 154.00 round-figure mark, has the potential to lift the  pair towards the 154.35-154.40 supply zone en route to the 155.00 psychological mark. Spot prices could extend the momentum and eventually climb to test the late-July swing high, around the 155.20 region