The Japanese Yen experienced a slight decline against the US Dollar during Tuesday’s Asian trading session, moving away from a one-week high reached the day before. Nevertheless, the decline appears limited as traders remain cautious amid ongoing uncertainties surrounding the US presidential election. Anticipation of a potential interest rate hike from the Bank of Japan (BoJ) during its upcoming December meeting may also provide support to the Yen.
The situation is further complicated by a shift away from the so-called “Trump trade,” coupled with expectations that the Federal Reserve will lower interest rates in the near future. This dynamic has led to a decrease in US Treasury bond yields and a narrowing of the interest rate gap between the US and Japan. This scenario continues to keep the US Dollar under pressure, creating a favorable environment for the Japanese Yen. Additionally, a generally weaker risk sentiment adds to the Yen’s stability and hinders any significant gains for the USD/JPY pair.
As the USD/JPY pair attempts to regain upward momentum, several factors could limit its advance ahead of pivotal events this week, including the US presidential election and the Federal Open Market Committee (FOMC) meeting. Recent economic data, including a disappointing jobs report from October, has reinforced market expectations for a potential interest rate cut by the Federal Reserve, further complicating the outlook for the US Dollar.
In the political landscape, the prospects for Donald Trump’s candidacy in the upcoming 2024 presidential election have diminished, with Democratic Vice President Kamala Harris showing some polling strength, although the race remains highly competitive. As traders unwind positions linked to Trump, this adds pressure, contributing to lower US Treasury yields and ultimately supporting the Yen in the current risk-averse market environment.
Technically, the 152.00 level serves as a critical support point ahead of the recent swing low found in the 151.50-151.55 range. A further decline could see the USD/JPY pair test the 151.00 level, potentially moving toward the 100-day Simple Moving Average, currently near 150.30. Conversely, if the pair manages to overcome resistance around 152.55 – 152.60, it could extend its rally toward 153.00 and beyond, potentially reaching the 153.85 – 153.90 region, a three-month peak hit last week. Continued strength beyond these levels could signal bullish momentum for traders.
