The Japanese Yen is experiencing difficulties in maintaining momentum following a brief recovery from a multi-month low. The uncertainty surrounding potential rate hikes by the Bank of Japan (BoJ) and a prevailing risk-on sentiment are putting pressure on the safe-haven currency. Though a slight uptick in the US Dollar provides some support to the USD/JPY pair, fears of government intervention are limiting any significant upward movement.
During the Asian trading session on Friday, the Yen continued its decline against the Dollar, reversing some of the gains made the previous day. Recent data revealed a drop in Japan’s real wages in September, further exacerbated by rising living costs. This situation is likely to impede household spending, posing challenges for inflation forecasts and delaying any additional rate hikes from the BoJ amidst ongoing domestic political uncertainty.
The Yen is also feeling the effects of a generally optimistic market sentiment, which typically undermines its appeal as a safe-haven asset. The emergence of buying interest in the US Dollar has contributed to this trend. Meanwhile, Japanese officials have signaled potential intervention in the currency markets, especially after the Yen weakened substantially. The recent reduction in US Treasury bond yields, affected by market dynamics, could also deter aggressive selling of the Yen, providing some balance in the currency pair.
Recent government statistics show that household spending in Japan declined for two consecutive months, indicating a broader economic challenge. This data arrives alongside a decrease in inflation-adjusted wages, further complicating the BoJ’s ability to consider any future rate increases.
Additionally, a policy easing cycle initiated recently by the Federal Reserve has affected global currency dynamics. With market participants anticipating further rate cuts from the Fed, the potential for substantial gains in the USD/JPY pair remains limited. Technical indicators suggest that while immediate resistance lies around 153.50, a stronger upward movement could push the pair towards prior peaks at around 154.70, with the psychological 155.00 level also in sight.
