The Japanese Yen has shown signs of appreciation as the US Dollar remains relatively stable, with traders keenly anticipating key employment data from the US set for release on Friday. Economic discussions in Japan highlight the importance of timing regarding any potential monetary policy shifts. Japan’s Economy Minister, Ryosei Akazawa, underscored the government’s focus on battling deflation, affirming that achieving the targeted 2% inflation is a top priority. However, he noted that the timing of any changes in monetary policy needs to align closely with these broader economic objectives.
Recent remarks from Japan’s Chief Cabinet Secretary point to Prime Minister Ishiba’s intention to introduce a comprehensive economic package. There were hints that a supplementary budget could be proposed to Parliament after the upcoming lower house election. Yet, prospects for further depreciation of the USD/JPY pair appear limited, as the Japanese Yen may face challenges due to the lesser probability of the Bank of Japan increasing interest rates anytime soon. Ishiba’s stance suggests a cautious approach towards further tightening of financial policy.
On the US side, the Dollar experienced a slight boost due to unexpectedly strong reports on the ISM Services PMI and ADP Employment Change, which have prompted a reassessment of dovish expectations regarding the Federal Reserve’s monetary stance. Current market sentiment leans towards a substantial probability of a 25 basis point rate cut in November, though expectations for larger reductions have eased slightly.
Data from the ADP report highlighted a job increase of 143,000 in September, which exceeded predictions, alongside an annual pay rise of 4.7%. Amid these developments, the Bank of Japan remains committed to fostering loose monetary conditions while keeping a watchful eye on inflation trends influenced by wage growth. The recent Summary of Opinions from the BoJ reinforces a cautious approach, suggesting no immediate shift in their accommodative policy despite potential economic improvements.
From a technical perspective, the USD/JPY pair is trading near a five-week high, with indicators suggesting a potential bullish momentum. Resistance levels are formed close to the top of the current ascending channel, while support could be found at various moving averages and channel boundaries, highlighting the intricate balance between upward and downward pressures on this currency pair.
