Japanese Yen Market Stalls as Rate Hike Speculation Continues

• Amid the mixed sentiment, the yen has struggled to gain foreign exchange support.
• Uncertainty on inflation and disappointing data from the Bank of Japan limited the yen’s gains.
• Small cuts from the Fed will support the dollar and provide support to USD/JPY.

The yen traded firmly higher against a basket of Asian currencies on Wednesday, recovering from its lowest level since August, a day before the result was stalled. Uncertainty over the Bank of Japan’s (BOJ) interest rate hike plans has finally become the main factor driving the yen’s rise. In addition, disappointing Japanese core machinery orders in August have put yen bulls on the defensive.

Going forward, the shift in global risk sentiment, as evidenced by the weak tone at the stock market fair, could continue to provide some support for safe assets – geopolitical risks remain Yes, the yen has become a safe haven currency. Also, a slight decline in the US could help ease the positive currency movement in the USD/JPY pair. Still, the possibility of a small rate cut by the Federal Reserve suggests that the path to the price area of ​​least resistance is still valid.

Daily Summary Market Trends: Yen remains weak due to multiple factors

• The yen strengthened against the dollar at its lowest level since early August amid doubts about when the Bank of Japan will raise interest rates again.
• Japanese Prime Minister Shigeru Ishiba is ready to combat further inflation by increasing policy uncertainty financing, while comments from Bank of Japan Governor Kazuo Ueda took a strange turn.
• Government data showed this Wednesday that Japan’s Core Machinery Orders fell for the second straight month, by 1.9% in August, missing estimates by a big margin and signaling deterioration in demand.
• Given that manufacturing represents about 15% of Japan’s workforce, weaker orders may affect the labor market, resulting in slower wage growth, reduced consumer spending and complicating BoJ’s rate-hike plans.
• Japan’s upcoming stimulus package will be bigger than last year’s measures that were financed with a 13 trillion yen ($87 billion) extra budget, a government spokesperson said on Wednesday.
• The US Dollar consolidates near its highest level since August 8 amid firming expectations for a less aggressive policy easing by the Federal Reserve and bets for a regular 25 basis points interest rate cut in November.
• San Francisco Federal Reserve President Mary Daly said on Tuesday that the Fed is making progress in bringing inflation under control and is expected to cut rates one or two more times this year if fiscal forecasts are met.
• Atlanta Federal Reserve Bank President Raphael Bostic said the U.S. economy is still in good shape and inflation has returned to 2%, but he does not see any significant signs of an impending recession.
• The Biden administration has warned Israel that it could face U.S. sanctions, including sanctions over its arms trade, if it does not act immediately to provide more humanitarian aid to Gaza.

Tech Outlook: USD/JPY bullish trend continues, break to 150.00 still possible

From a technical perspective, further declines would see good support near the 148.60-148.55 area. However, some further sell-offs could see USD/JPY weaken further below the 148.00 level and test last week’s low of 147.35. The latter is based on the 147.00 mark; this decision would signal the end of last month’s uptrend and pave the way for further downtrends. On the upside, the emotional 150.00 level seems to be an immediate and strong concern; a breakout could quickly lead USD/JPY to the August highs (around the 150.85-150.90 area). Some follow-up buying above the 151.00 level would be seen as a fresh breakout for bullish traders and could push prices from around 152.00 towards the 152.65-152.70 range.