USD/JPY Price Analysis – Oct 03, 2024
Daily Price Outlook
During the Asian trading session, the USD/JPY currency pair maintained its upward trend, remaining well-bid around the 146.72 level and hitting an intraday high of 147.24.
The upward movement can be attributed to dovish comments from Prime Minister Ishiba, along with uncertainty surrounding the Bank of Japan's monetary policy, which has weakened the Japanese Yen (JPY).
Consequently, the USD/JPY pair is likely to experience upward momentum, reflecting increased demand for the US Dollar amid growing market uncertainty.
Moreover, the US dollar has received support from safe-haven flows due to rising geopolitical tensions in the Middle East, further boosting the USD/JPY pair.
Strengthening US Dollar and Its Impact on the USD/JPY Pair
On the US front, the US dollar is gaining strength as recent economic data shows a resilient labor market. This has led to lower expectations for aggressive interest rate cuts by the Federal Reserve (Fed).
According to the CME FedWatch Tool, there is a 65.4% chance of a 25 basis point rate cut in November, while the likelihood of a 50 basis point cut has dropped to 34.6%, down from 57.4% a week ago.
Tom Barkin, President of the Federal Reserve Bank of Richmond, emphasized that the fight against inflation isn’t over. He noted that while a 50 basis point cut in September was justified, risks still exist.
Positive employment trends, such as a reported increase of 143,000 jobs in September, have also contributed to the dollar's strength.
However, while the AiG Industry Index shows slight improvement, it still indicates contraction for the 29th consecutive month, and the AiG Manufacturing PMI has reached its lowest level.
Fed Chairman Jerome Powell mentioned that the central bank is not rushing to cut rates further, suggesting that any future rate changes will be modest.
As a result, the strengthening US dollar, supported by solid labor market data and tempered rate cut expectations, is likely to apply further upward pressure on the USD/JPY pair.
Impact of Japan's Dovish Monetary Policy on the USD/JPY Pair
On the other side, Japan's new Prime Minister, Shigeru Ishiba, has made clear comments about the country's monetary policy after meeting with Bank of Japan (BoJ) Governor Kazuo Ueda.
Ishiba stated, "I do not believe that we are in an environment that would require us to raise interest rates further," which has raised concerns among investors.
Following his remarks, the Japanese Yen (JPY) fell nearly 2% against the US Dollar (USD), marking its biggest drop since February last year.
Japan’s Chief Cabinet Secretary, Yoshimasa Hayashi, clarified that Ishiba did not ask Ueda for specific monetary policy details during their meeting, indicating a cautious approach.
Furthermore, Japan's Economic Revitalization Minister, Ryosei Akazawa, mentioned that Ishiba expects the BoJ to conduct thorough economic assessments before considering any interest rate hikes. Market futures show less than a 50% chance that the BoJ will raise rates by 10 basis points by December.
Meanwhile, projections suggest that interest rates will only reach 0.5% by the end of next year, up from the current 0.25%.
This lack of urgency regarding interest rate increases is likely to continue putting downward pressure on the yen as investors seek stronger returns elsewhere.
Therefore, the dovish comments from Japan’s Prime Minister Shigeru Ishiba, coupled with reduced expectations for interest rate hikes, are likely to weaken the Japanese Yen (JPY).
This scenario is expected to support the USD/JPY pair, driving it higher as investors favor the US Dollar (USD).
USD/JPY - Technical Analysis
The U.S. Dollar (USD) is maintaining its upward trajectory against the Japanese Yen (JPY), currently trading at 146.768, up 0.22% for the session.
The pair’s strength can be attributed to a combination of favorable U.S. economic data and continued monetary policy divergence between the Federal Reserve and the Bank of Japan.
The 4-hour chart shows USD/JPY trading above its pivot point of 146.231, with bullish momentum pushing the price towards the immediate resistance level at 147.248. Further resistance is noted at 147.866 and 148.567, where a breakout could spark another leg higher.
Technical indicators reveal a mixed outlook. The Relative Strength Index (RSI) has surged to 70, suggesting that the pair is now approaching overbought territory.
This could result in a short-term pullback or consolidation phase as traders look to lock in profits. On the support side, the 50-day Exponential Moving Average (EMA) is positioned at 144.045, providing a solid floor that could limit any downward movement.
Immediate support stands at 145.585, followed by additional support levels at 145.104 and 144.609.
A break below 145.585 could see the pair testing the 50 EMA near 144.045, though the overall uptrend remains intact as long as prices hold above the pivot point at 146.231.
Conclusion: With the pair nearing overbought conditions, traders may consider short positions if the price drops below 147.255, targeting 145.620, while placing a stop-loss at 148.227 to limit potential losses.
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