Uncertainty over the Bank of Japan's future rate hike puts pressure on the yen | 03 October 2024

USDJPY:

The USD/JPY pair has continued to gain ground following the breakout through the 50-day simple moving average (SMA) on Wednesday. On Thursday, it attracted buyers for the second consecutive day. This marks the third consecutive day of positive movement, lifting spot prices to the 147.20-147.25 area, representing the highest level since 20 August during the Asian session.

The Japanese yen (JPY) has been adversely affected by the comments made by the newly appointed Prime Minister, Shigeru Ishiba, on Wednesday. Mr Ishiba stated that the current economic environment does not allow for an additional rate hike. Furthermore, Japan's recently appointed Economy Minister Ryosei Akazawa anticipates that the Bank of Japan (BoJ) will conduct a thorough economic assessment prior to implementing the next interest rate hike. In addition, the political uncertainty ahead of the 27 October snap election continues to exert a downward pressure on the Japanese yen, thereby providing a tailwind for the USD/JPY.

Meanwhile, the US dollar (USD) has maintained its robust recovery this week and is currently trading near a three-week high, as the likelihood of further aggressive policy easing by the Federal Reserve (Fed) diminishes. Indeed, markets have reduced their expectations of another significant Federal Reserve interest rate cut in November, reflecting the continued resilience of the US labour market, as evidenced by Wednesday's positive ADP report. This is regarded as a further factor driving demand for the USD/JPY pair and supporting further upside potential.

From a technical standpoint, the overnight breakout and close above the 50-day simple moving average (SMA) for the first time since mid-July is seen as a new boost for those with a bullish outlook. Furthermore, positive oscillators on the daily chart confirm a constructive outlook and indicate that the path of least resistance for the USD/JPY pair lies to the upside. Traders are now awaiting the release of data on the US economy, including weekly initial jobless claims and the ISM services PMI. This data, along with the Fed's speech, will have an impact on the USD/JPY exchange rate and will provide a boost to the currency pair.

Trade recommendation: Trading mainly by Buy orders from the current price level.

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