- The USD/JPY outlook remains broadly bullish with mild pullbacks amid intervention fears.
- The US dollar gains safe-haven demand due to political chaos in Japan and Europe.
- Investors are eying consumer sentiment data today for more impetus.
The US dollar trades mixed against the Japanese yen on Friday after marking a fresh eight-month top above the 153.00 level. FOMC September meeting minutes revealed that most policymakers urged a 25 bps rate cut with a cautious but dovish tone. Markets interpreted this as a confirmation for further easing before year-end, putting pressure on the US dollar.
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However, Japan’s shifting political scenario dominated the yen’s trajectory following the surprise victory of Sanae Takaichi in the LDP leadership race. This sparked the odds of a more expansionary fiscal policy, like ex-Prime Minister Abe’s economic policies. As a result, the investors have trimmed the bets on near-term Bank of Japan tightening.
Takaichi’s policy stance suggests continuity of the existing agenda, with markets anticipating additional fiscal stimulus that could delay the BoJ’s rate normalization plans. Despite this, Japan’s inflation has remained stubbornly above 2% for three years, keeping hopes of a rate hike alive this year.
The dovish expectations of BoJ with a politically uncertain environment heavily weighed on the yen before posting a mild recovery in the Asian session on Friday. The Japanese currency found support from safe-haven demand as equities slid, while officials warned of intervention in case of an aggressive one-sided move of yen. Finance Minister Katsunobu Kato said on Friday, “We are currently seeing one-sided and rapid movements in the market… The government will carefully assess any excessive or disorderly movements.”
On the other hand, the US dollar remains broadly strong amid relative economic resilience and safe-haven demand from ongoing political turmoil in Japan and Europe. The Dollar Index (DXY) marked a fresh 2-month top on Thursday despite traders betting on two Fed rate cuts this year. The continued government shutdown for the second week adds more to the uncertainty. However, the Bureau of Labor Statistics recalled the staff to complete the September consumer inflation data, reassuring investors that the data will be released before the Fed’s October meeting.
The USD/JPY pair remains upward as the yen struggles with policy divergence and political instability. However, the bullish momentum could see a setback amid intervention risks as an ex-official said that the government intervention would become evident if the price hits 160.00.
USD/JPY Key Events Ahead
- FOMC member Daly speaks
- FOMC member Musalem speaks
- Prelim UoM Consumer Sentiment
- Prelim UoM Inflation Expectations
Consumer sentiment data remains essential today as investors are cautious when gauging business activity without primary data.
USD/JPY Technical Outlook: Correction Before Upside
The USD/JPY 4-hour chart shows signs of correction as the RSI remains in the extreme overbought region. The pair has been off the highs, looking to test the 20-period MA around 152.20. Finding acceptance below it could push the price down to the resistance-turned-support around 150.00. A big up gap formed last Friday shows the probability of a deeper correction towards 147.50 to fill the gap.
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On the upside, immediate resistance lies at the recent top near 153.30 ahead of 12th Feb highs of 154.80. However, the bullish move could find many pullbacks due to profit-taking.
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