USD/JPY Price Analysis – Oct 12, 2023

Daily Price Outlook

The USD/JPY currency pair failed to maintain its upward stance and dropped around 149.00 during the European session on Thursday. The currency pair has been facing challenges due to the possibility of the Federal Reserve (Fed) ending the rate-hike cycle, which underminned the US dollar and contributed to the USD/JPY pair.

Some investors think the Fed may not increase rates anymore. Fed Governor Christopher Waller suggests taking it easy with rate hikes and believes that the financial markets might naturally stabilize things. On the other hand, Fed Governor Michelle Bowman is in favor of another rate hike, citing ongoing inflation above the Fed's 2% target.

Japanese Yen Weakens as Bank of Japan Emphasizes Flexible Monetary Policy

The Japanese Yen is weakening due to the Bank of Japan's (BoJ) persistently easy monetary policy. BoJ board member Asahi Noguchi highlighted concerns about wage growth and attributed inflation to import price increases. He stressed the importance of achieving the 2% inflation target and real wage growth while expressing support for the current Yield Curve Control (YCC) policy.

Noguchi also suggested that if central banks avoid rate hikes and inflation remains stable, the risk of a hard economic landing can be reduced. Overall, he advocates for a flexible approach to maintain an accommodative policy under YCC, balancing economic recovery with effective management of inflation expectations in Japan's gradually recovering economy.

Mixed Signals on Fed Rate Hike Plans and Economic Indicators

Investors are grappling with uncertainty regarding the US Federal Reserve's rate hike intentions. Fed Governor Christopher Waller supports a cautious approach, emphasizing the role of market tightening, while Fed Governor Michelle Bowman leans towards another rate hike due to ongoing inflation. This divergence in perspectives is reflected in the Federal Open Market Committee (FOMC) minutes, highlighting the significance of data-driven decisions and the requirement for substantial inflation growth to reach a policy consensus.

Notably, the US Producer Price Index (PPI) rose in September, and the focus now shifts to the Consumer Price Index (CPI) release, with expectations of a slight annual rate decrease. The US Dollar Index (DXY) faces challenges due to subdued Treasury yields, particularly the 10-year bond, which stands at 4.54%. Hence, the USD/JPY pair may experience volatility as uncertainty surrounding the Fed's rate hike plans persists.

USD/JPY - Technical Analysis

On October 12, the USD/JPY currency pair saw a marginal downtrend of 0.11%, positioning at 149.122 during the Asian trading session as reflected in the 4-hour chart. The established pivot point for the pair stands at 148.92.

From a resistance standpoint, USD/JPY confronts an immediate barrier at 150.55, with ensuing levels positioned at 151.78 and 153.41. Contrarily, the support zones are discernible at 147.69, then at 146.04 and further down to 144.81.

Focusing on the technical indicators, the Relative Strength Index (RSI) manifests a value of 55, which tilts slightly towards a bullish bias, yet remains neutral without entering the overbought or oversold territories.

The Moving Average Convergence Divergence (MACD) posts a reading of 0.061, contrasting with its signal line at 0.02, signifying possible upward momentum. Significantly, the pair currently hovers just above its 50-Day Exponential Moving Average (EMA), marked at 148.94, which typically indicates a short-term bullish inclination.

While specific chart patterns are yet to emerge prominently, the overarching sentiment for USD/JPY leans bearish if it settles below the 149.30 mark, with a potential reversal to bullishness if it surpasses this threshold. For the immediate future, traders should remain vigilant and anticipate potential tests of the aforementioned resistance and support zones, which would shape the short-term direction of the currency pair.

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