The Japanese Yen is facing challenges in attracting significant buyers, particularly during Friday’s Asian trading session. The USD/JPY pair is currently trading just below its highest value since early August. Recent economic data out of Japan, including a notable decline in real wages for the first time in three months and reduced household spending, has cast doubt on the Bank of Japan’s plans for an interest rate hike. The easing price pressures from raw material costs further complicate the yen’s situation, especially in the run-up to Japan’s snap election on October 27.
On the other side of the Pacific, the market’s initial reaction to stronger-than-expected US consumer inflation data dissipated quickly, especially in light of emerging weaknesses in the labor market. The Federal Reserve appears focused on achieving maximum sustainable employment, and a recent spike in US jobless claims suggests a potential for continued interest rate cuts. This indicates a defensive stance for the US dollar, which is currently below the nearly two-month high reached earlier, as traders anticipate the forthcoming release of the US Producer Price Index.
Expectations that the Bank of Japan will maintain borrowing costs without haste are not helping the Japanese Yen reestablish momentum against the dollar. Political uncertainty ahead of the upcoming election, coupled with a generally optimistic market sentiment, further undermines demand for the yen.
The US dollar surged to its highest level since mid-August following a report from the US Labor Department, which noted a 3.3% annual increase in the core Consumer Price Index for September. While the headline CPI was reported at a 2.4% increase, this figure, although exceeding expectations, remains lower than the previous month and represents the smallest year-on-year growth since February 2021. Additionally, rising unemployment claims signal potential weaknesses in the labor market, reinforcing the notion that interest rates may continue to decline.
From a technical standpoint, the recent movement above the 50-day Simple Moving Average and acceptance past the 38.2% Fibonacci retracement level suggests a bullish bias for the USD/JPY pair. Current indications point toward future buying interest that could support prices near the 148.00 level. If this level were to be breached, it may lead to technical selling, potentially dragging the pair down to intermediate support levels around 147.35 and 147.00. Conversely, significant resistance is anticipated near the 149.00 level, with further challenges at the overnight high around 149.55-149.60. Beyond this point, there lies potential for the bulls to target the psychological 150.00 level and potentially beyond, toward the 50% Fibonacci retracement zone around 150.75-150.80.
