USD/JPY Price Analysis – Nov 30, 2023

Daily Price Outlook

The Japanese Yen (JPY) continues to exhibit strength against the US Dollar (USD) for the fifth consecutive day, despite the Bank of Japan (BoJ)'s less hawkish stance, as indicated by recent comments from BoJ officials. BoJ board member Seiji Adachi emphasized on Wednesday that Japan's economy is not yet at a stage to consider exiting its ultra-easy monetary policy. This sentiment was echoed on Thursday by BoJ policymaker Toyoaki Nakamura, who noted the absence of sustained, stable 2% inflation and wage growth.

Investors seem to anticipate a shift from the BoJ's dovish policy, a sentiment that, combined with a weaker risk appetite, supports the JPY. This investor sentiment is further influenced by the disappointing Chinese PMI figures for November, reflecting concerns about the health of the world's second-largest economy. Concurrently, the USD is facing pressure, reflected in the USD/JPY pair trading near a three-month low as the European session commences on Thursday.

The USD Index (DXY) struggles to build on its overnight recovery, hindered by the consensus that US interest rates have reached their peak. Market expectations of the Federal Reserve (Fed) potentially easing its monetary policy as early as March 2024 have resulted in a decline in US Treasury bond yields, further challenging the USD. These factors suggest a downward trajectory for the USD/JPY pair, with the upcoming US PCE Price Index release being the next focal point for traders.

Despite the BoJ's recent less hawkish comments, the expectation of a shift in the bank's stance lends support to the JPY. Adachi's remarks about Japan not yet seeing a positive wage-inflation cycle and the BoJ's readiness for additional easing measures suggest a cautious approach to policy normalization. Similarly, Nakamura's comments underline the need for patience in maintaining the current easing policy.

The Japanese economy shows mixed signals, with Retail Trade in October declining by 1.6% month-on-month but registering a 4.2% year-on-year growth, an upward revision from the previous month. The Industrial Production in Japan also exceeded expectations, recording a 1% increase in October compared to September and a 0.9% year-on-year growth.

In contrast, the US economy reported a stronger-than-anticipated growth, with a 5.2% annualized increase in GDP for the third quarter. However, the impact of this positive data was somewhat offset by dovish signals from Federal Reserve officials, indicating a likelihood of rate cuts in 2024. Cleveland Fed President Loretta Mester acknowledged progress in achieving a 2% inflation rate, while Richmond Fed President Tom Barkin expressed concerns about persistent inflation.

The speculation in the US rates futures markets about more than 100 basis points of rate cuts starting in May 2024, coupled with the lowest yield on the two-year US government bond since July, keeps USD bulls cautious. This backdrop sets a bearish tone for the USD/JPY pair ahead of the release of the US PCE Price Index.

USD/JPY - Technical Analysis

In the currency markets today, the USD/JPY pair has seen a slight decline, down by 0.12% to 147.03, reflecting a tentative bearish sentiment among traders. This minor dip may be an indicator of a broader hesitation within the market as investors grapple with the pair’s recent volatility.

The pair is currently trading around a pivot point of 145.98, indicating potential shifts in market direction. The immediate resistance is seen at 147.80, with further barriers at 148.83 and a significant resistance at 150.54. On the downside, immediate support lies at 144.90, with additional supports placed at 143.81 and 142.67, which could stabilize any further downward movement.

Technical indicators suggest a bearish inclination with the RSI at 34, indicating that the pair is nearing oversold conditions, which could presage a potential bounce back if buying interest is triggered. The price sitting below the 50-Day EMA of 147.38 further solidifies the current bearish bias.

Chart patterns do not present a clear narrative, but the price below the 50 EMA and the pivot suggests a bearish undertone may persist in the short term.

The overall technical perspective for the USD/JPY pair is bearish as long as it remains below 147.72. The immediate expectation is for the pair to potentially test and react to the identified resistance levels in the near future.

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