Japanese Yen seems vulnerable against USD, holds above its lowest level since August

• The Japanese Yen edges higher against the USD, though it lacks bullish conviction. 
• The uncertainty over the BoJ’s rate-hike plan and a positive risk tone caps the JPY. 
• Bets for smaller Fed rate cuts underpin the USD and also lend support to USD/JPY.

The Japanese Yen (JPY) struggles to capitalize on a modest Asian session uptick and languishes near the lowest level since early August against its American counterpart touched on Wednesday. Data published this Thursday showed that Japan’s exports in September declined for the first time in 10 months and raised concerns about weakness in global demand. This comes on top of a surprise opposition to further rate hikes by Japan’s Prime Minister Shigeru Ishiba and may complicate the Bank of Japan’s (BoJ) plans to exit years of ultra-easy monetary policy, which caps the JPY. 

Apart from this, a generally positive tone around the equity markets is seen acting as a headwind for the safe-haven JPY. The US Dollar (USD), on the other hand, stands firm near its highest level in over two months amid expectations that the Federal Reserve (Fed) will proceed with modest rate cuts over the next year. This keeps the yield on the benchmark 10-year US government bond above the 4% threshold and further undermines the low-yielding JPY, which, in turn, assists the USD/JPY pair to reverse a modest intraday dip and currently trade around the 149.50-149.55 region. 

Daily Digest Market Movers: Japanese Yen bulls remain on the sidelines amid BoJ uncertainty and stronger USD

• According to a Reuters poll, a slim majority of economists expect that the Bank of Japan will forgo raising interest rates again this year amid uncertainty over the new political leadership’s preference for the monetary policy.
• Data published by Japan’s Ministry of Finance on Thursday showed that total exports in September dropped 1.7% from a year earlier as compared to a revised 5.5% rise in the previous month and missing consensus estimates.
• Soft demand in China – Japan’s biggest trading partner – and a slowing US growth, along with the JPY’s recent appreciation following the BoJ’s unexpected interest rate hike in late July, pushed down the value of exports. 
• This could further complicate the BoJ’s rate-hike plans and cap any meaningful appreciating move for the JPY, though persistent geopolitical risks stemming from the ongoing conflicts in the Middle East might offer support.
• The United Nations (UN) said that Israeli forces have fired at its peacekeeping position, forcibly entered a base, stopped a critical logistical movement, and injured more than a dozen of its troops in southern Lebanon.
• According to a source familiar with the matter, Israel’s plan of a counterstrike in response to Iran’s October 1 attack is ready, raising the risk of a further escalation of tensions in the Middle East and a broader regional war. 
• The US Dollar rose to its highest level since early August on Wednesday amid firming expectations for a less aggressive policy easing by the Federal Reserve and bets for a 25 basis points rate cut at the November meeting. 
• The yield on the benchmark 10-year US government bond dropped to over a one-week low on Wednesday, albeit it defends the 4.0% threshold, which favors the USD bulls and should offer support to the USD/JPY pair. 
• Traders look to the US economic docket – featuring the release of monthly Retail Sales, Weekly Initial Jobless Claims and the Philly Fed Manufacturing Index – for some impetus later during the North American session. 

Technical Outlook: USD/JPY needs to find acceptance above the 150.00 mark to support prospects for additional gains

From a technical perspective, the USD/JPY pair has been oscillating in a familiar range since the beginning of this week. Against the backdrop of the recent rise from a 14-month low touched in September, this might still be categorized as a bullish consolidation phase. Moreover, oscillators on the daily chart are holding in positive territory and are still away from being in the overbought zone, supporting prospects for an eventual breakout to the upside. That said, it will still be prudent to wait for a sustained strength above the 150.00 psychological mark before placing fresh bullish bets. Spot prices might then accelerate the move up towards the August monthly swing high, around the 150.85-150.90 region. Some follow-through buying beyond the 151.00 round figure will be seen as a fresh trigger for bullish traders and pave the way for further near-term appreciation.

On the flip side, the 149.00 mark, representing the lower boundary of the short-term trading range, might continue to protect the immediate downside. A convincing break below has the potential to drag the USD/JPY pair to the next relevant support near the 148.55 region en route to the 148.00 round figure and last week’s swing low, around the 147.35-147.30 area. The latter is followed by the 147.00 mark, which if broken decisively will suggest that the recent move-up witnessed over the past month or so has run its course and prompt aggressive technical selling.