The Japanese Yen (JPY) struggles to maintain a firm stance against the US Dollar (USD), wavering within a narrow range during Thursday’s Asian session. The currency’s hesitation comes amidst increasing domestic political uncertainty, mixed signals from the Bank of Japan (BoJ), and shifting global bond yields. Despite a recent recovery from a one-month low, the JPY remains caught in a tug-of-war between these conflicting forces.
Political and Economic Headwinds Weigh on the Yen
A critical aspect weighing on the Yen’s performance is Japan’s internal political instability. The ruling party’s secretary general, Hiroshi Moriyama, announced his resignation, sparking concerns about leadership continuity and the overall fiscal health of Japan. This uncertainty contributes to rising bond yields in Japan, with the country’s 30-year government bond yields hitting a record high above 3%, signaling growing concerns about fiscal sustainability.
This internal turbulence is exacerbated by the broader global economic uncertainty, which has prompted the BoJ to tread cautiously. Although BoJ Governor Kazuo Ueda has signaled readiness to raise interest rates if inflation and economic conditions align with projections, Deputy Governor Ryozo Himino’s comments about high global uncertainty tempered these expectations. This divergence between BoJ cautiousness and the growing likelihood of a Fed rate cut has kept the JPY under pressure, as speculators remain cautious and hesitant to place aggressive bets on the currency.
Diverging BoJ-Fed Policy Outlook Impacts USD/JPY
The divergent monetary policies between the BoJ and the Federal Reserve (Fed) add to the market’s uncertainty. While the BoJ is tentatively moving toward tightening policy amidst wage growth and sticky inflation, the Fed is seen likely to ease rates soon. Following the latest JOLTS data, which showed a significant drop in US job openings to 7.18 million in July, market expectations for a Fed rate cut have surged. With traders now pricing in a high probability of a 25-basis-point rate cut in the Fed’s September meeting, the USD has faced downward pressure, providing the JPY with some support.
However, despite these supportive fundamentals for the Yen, the political landscape in Japan, compounded by the recent bond market sell-off, has kept investors on edge, limiting the Yen’s ability to capitalize on the USD’s weakness. Traders are also awaiting the upcoming US jobs data, including the ADP Employment Change, ISM Services PMI, and the more influential Nonfarm Payrolls report, which could provide fresh momentum to the USD.
Technical Outlook for USD/JPY: Key Levels to Watch
From a technical perspective, the USD/JPY pair remains trapped within a range, with resistance seen around the 149.00 level and support at 148.00. A break below the 148.00 support level could trigger further bearish moves towards 147.40 and 147.00, with a potential test of the August swing low at 146.20.
On the upside, any positive movement above the 148.30-148.25 region could bring the pair back towards the 200-day Simple Moving Average (SMA) near 148.75-148.80, providing a fresh opportunity for USD/JPY bulls. A decisive break above 149.00 could lead to further upside momentum, targeting the psychological 150.00 mark and potentially extending toward the August swing high near 151.00.
Key Events Ahead
As the market awaits further US economic data, including the pivotal Nonfarm Payrolls report on Friday, traders will keep a close eye on the USD/JPY pair’s response to any significant shifts in expectations for US monetary policy. With political uncertainty weighing on the Japanese Yen and BoJ’s cautious stance amid a fluctuating global economy, the outlook for USD/JPY remains highly fluid, with traders advised to stay alert for potential breakouts or reversals in the coming days.
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