Japanese Yen hangs near nine-month low against USD amid BoJ uncertainty

The Japanese Yen (JPY) continues with its relative underperformance against its American counterpart during the Asian session on Monday and remains closer to a nine-month low touched last week. A government report showed earlier today that Japan’s economy contracted in the July-September period for the first time in six quarters. This comes on top of Japan’s Prime Minister Sanae Takaichi’s fiscal stimulus plans and support for ultra-loose monetary policy, dampening bets for a Bank of Japan (BoJ) rate hike and undermining the JPY. This, along with a modest US Dollar (USD) uptick, assists the USD/JPY pair in holding steady above mid-154.00s.

The JPY bears, however, seem reluctant to place aggressive bets on the back of speculations that Japanese authorities might step into the markets to stem further weakness in the domestic currency. Apart from this, a generally weaker tone around the equity markets contributes to limiting deeper losses for the safe-haven JPY. The USD, on the other hand, might struggle to attract any meaningful buyers amid worries about the weakening economic momentum on the back of the longest-ever US government shutdown. This, in turn, warrants caution before positioning for an extension of the USD/JPY pair’s move up witnessed over the past month or so.

Japanese Yen struggles to lure buyers as economic contraction adds to BoJ uncertainty

• The Cabinet Office reported this Monday that Japan’s economy contracted by 0.4% in the July-September period, marking the first fall in six quarters. Furthermore, the Gross Domestic Product fell 1.8% year-on-year in the September quarter following a 2.3% rise in the previous quarter.
• The readings were less worse than consensus estimates, though pointed to a limited strength in the Japanese economy. This forced investors to pare their bets that the Bank of Japan will hike interest rates soon amid increasing political resistance and undermines the Japanese Yen.
• Japan’s Prime Minister Sanae Takaichi’s administration is compiling a stimulus package to cushion the blow to households from rising living costs. Takaichi said last week that she would work on setting a new fiscal target extending through several years to allow more flexible spending.
• China and Japan exchanged sharp warnings after Takaichi’s remarks over the use of military force in any Taiwan conflict. In response, China threatened severe consequences, raising the risk of further escalation of tensions and the worsening diplomatic standoff between the two nations.
• This, in turn, is seen weighing on investors’ sentiment and offering some support to the safe-haven JPY. Meanwhile, the recent decline in the JPY prompted some verbal intervention from Japanese authorities. This further holds back the JPY bears from placing fresh bets and limits losses.
• In fact, Japan’s Finance Minister Satsuki Katayama said last week that she will be watching FX moves with a sense of urgency. Moreover, Japan’s Economy Minister Minoru Kiuchi said on Friday that a weak JPY can push up CPI through import costs, warranting caution for the JPY bears.
• Meanwhile, a growing number of Federal Reserve policymakers signaled caution on further easing amid the lack of economic data. This tempers expectations for another interest rate cut by the US central bank in December, which lends some support to the US Dollar and the USD/JPY pair.
• The market attention now shifts to the delayed release of the closely-watched US Nonfarm Payrolls report on Thursday. Apart from this, FOMC meeting minutes and Fed speeches will be scrutinized for cues about the future rate-cut path, which should provide a fresh impetus to the buck.

USD/JPY bulls now await acceptance above 155.00 before positioning for further gains

From a technical perspective, Friday’s goodish rebound from the 153.60 support, representing the 100-period Simple Moving Average (SMA) on the 4-hour chart, and a close above the 154.45-154.50 hurdle favors the USD/JPY bulls. Moreover, oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone. Some follow-through buying and acceptance above the 155.00 psychological mark will reaffirm the constructive outlook and lift spot prices to the 155.60-155.65 intermediate barrier en route to the 156.00 round figure.

On the flip side, weakness below the 154.00 immediate support might continue to attract some buyers and find decent support near the 153.60-153.50 region, below which the USD/JPY pair could slide to the 153.00 round figure. The latter should act as a key pivotal point, which, if broken decisively, might shift the near-term bias in favor of bearish traders and drag spot prices to the next relevant support near the 152.15-152.10 area.