The USD/JPY exchange rate has recently experienced a decline following verbal interventions from Japanese officials. Although the US dollar has seen a modest pullback, the downward movement of the pair appears to be constrained. This is particularly influenced by uncertainties surrounding potential interest rate hikes by the Bank of Japan (BoJ), especially with a general election approaching in Japan.
On Friday, the USD/JPY pair encountered resistance, breaking a two-day losing streak to reach its highest level since early August at around 150.30. However, during early trading in Europe, the spot price dipped below the significant 150.00 level due to comments from Japanese authorities regarding unsolicited trading activities. Officials emphasized their vigilance over foreign exchange fluctuations, suggesting a potential for government intervention to stabilize the yen.
Recent government data revealed a reduction in Japan’s Consumer Price Index (CPI), falling from a year-on-year rate of 3% to 2.5% in September. Core CPI, which omits fresh food volatility, showed a 2.4% increase year-over-year, down from a ten-month high of 2.8% observed in August. This slowdown is attributed to new government subsidies aimed at mitigating utility costs. Conversely, the gauge excluding fresh food and fuel — crucial for the BoJ’s assessment — edged up to 2.1%, indicating that demand-driven price pressures are still present. However, opposition from Prime Minister Shigeru Ishiba to rate hikes could complicate the BoJ’s approach to policy normalization.
Additionally, expectations for the Federal Reserve to implement modest rate cuts, supported by positive macroeconomic data from the US, may temper the dollar’s intraday decline and continue to support the USD/JPY pairing. Investors are now anticipating upcoming housing market data and remarks from a Federal Reserve Governor for further market direction.
From a technical standpoint, the fluctuations over recent weeks, characterized by an upward trend, suggest a short-term bullish trajectory for the USD/JPY pair. Indicators remain comfortably in positive territory without hitting overbought levels, hinting that further declines may attract new buyers near key support levels. Conversely, a breakout above the recent high could lead to continued upward momentum, with potential targets set at higher resistance levels provided there is decisive clearance of current barriers.
