The Japanese Yen made slight gains on Thursday, although its potential for significant upward movement appears constrained. Anticipation surrounding the upcoming general election on Sunday is contributing to uncertainties about the Bank of Japan’s (BoJ) interest rate policies, which are likely to weigh on the Yen. Meanwhile, expectations of a less aggressive monetary policy from the Federal Reserve are reinforcing support for the U.S. Dollar, particularly against the Yen.
During the Asian trading session on Thursday, the Yen traded within a narrow range against the U.S. Dollar, reflecting a recovery from the previous day’s decline that marked its lowest levels since July 31. However, the sentiment remains bearish for the Yen amid rising concerns about the election’s impact on Japan’s economic and monetary outlook. This uncertainty may make it more difficult for the BoJ to consider further rate hikes this year.
Recent increases in U.S. Treasury yields have also influenced the Yen’s performance, driven by speculation that the Federal Reserve will adopt a more cautious stance in its policy adjustments amid concerns over fiscal deficits. The robust bullish sentiment surrounding the U.S. Dollar indicates that the most likely trajectory for the USD/JPY pair is upward.
On the economic front, a survey indicated that both Japan’s manufacturing and services sectors contracted in October. The Au Jibun Bank flash Manufacturing PMI fell to 49.0, while the services PMI dropped to 49.3. Additionally, political forecasts suggest possible loss of majority by the ruling party following the election, which adds further uncertainty regarding the BoJ’s future strategies.
In the bond market, the yield on the benchmark 10-year U.S. government bond rose to its highest level in three months, amid increasing expectations for modest interest rate cuts from the Federal Reserve over the coming year. The volatility in U.S. Dollar dynamics will likely be influenced by upcoming economic reports and movements in bond yields.
Technically, the USD/JPY pair appears to be consolidating just below a significant Fibonacci retracement level. After breaking through a crucial resistance point earlier in the week, the pair is currently testing this threshold. If it successfully breaks above this level, it could pave the way for further upward momentum. Conversely, significant support is anticipated around the 152.00 level, and any significant downturn below this point may signal a shift in sentiment towards bearish trading.
