The Japanese Yen is being supported by hawkish BoJ expectations and a softer risk tone, which is contributing to its relative safe-haven status. On the other hand, bets on a rate cut by the Federal Reserve are dragging down the USD and weighing on USD/JPY.
The Yen has strengthened against the USD for the third day in a row, with increasing likelihood of a policy shift by the Bank of Japan. Japan’s inflation data suggests progress towards sustained rises in inflation, potentially allowing the BoJ to consider normalizing its ultra-loose monetary policy. Additionally, a generally weaker tone in the equity markets is supporting the safe-haven JPY. The prevalent USD selling bias, fueled by increased chances of earlier rate cuts by the Fed in 2024, is dragging the USD/JPY pair to a four-day low.
The Japanese Yen remains supported by stronger domestic inflation data. The nationwide headline and core CPI in Japan remained above the Bank of Japan’s 2% target for the 19th consecutive month in October. Additionally, a surge in Japan’s wholesale services inflation has fueled speculation that the BoJ will end its negative interest rate policy in 2024.
From a technical perspective, the USD/JPY pair could see a further decline if it breaks below the 148.00 level and the 100-day SMA support. On the other hand, immediate resistance is pegged near the 148.80 region.
The Bank of Japan’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen. This, along with the spike in global energy prices, has led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. However, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight.
