The Japanese Yen (JPY) continues its underperformance into Tuesday’s Asian session, hitting a fresh low against a stronger US Dollar (USD) not seen since early February. News that Japanese Prime Minister Sanae Takaichi plans tax cuts to boost consumption is raising concerns about the government’s long-term fiscal health. This, coupled with Japan’s weak Q3 GDP data released on Monday, could pressure the Bank of Japan (BoJ) to delay interest rate hikes, significantly undermining the JPY.
However, the JPY’s recent depreciation has prompted verbal intervention from Japan’s Finance Minister Satsuki Katayama. This, alongside a renewed global risk-aversion trend, is preventing aggressive bearish bets against the safe-haven JPY. Meanwhile, the USD is attracting further buying, supported by less dovish Federal Reserve (Fed) expectations. This should act as a tailwind for the USD/JPY pair as investors anticipate the FOMC Minutes and the delayed US Nonfarm Payrolls (NFP) report later this week.
Key Drivers for JPY Weakness and USD/JPY Strength:
- Japanese Fiscal Concerns & BoJ Rate Hike Doubts: Reports from Nikkei Asia indicate Prime Minister Takaichi will initiate tax-reform talks this week, aiming to stimulate the economy with tax cuts while addressing a potential ¥1.5 trillion revenue gap. This, combined with Monday’s report of Japan’s economy contracting in Q3—the first time in six quarters—is tempering expectations for an imminent BoJ rate hike, especially amidst growing political resistance.
- Verbal Intervention from Japan: Finance Minister Satsuki Katayama expressed alarm at the “one-sided, rapid moves” in the forex market, stating the government will closely monitor for excessive fluctuations with “high sense of urgency.” This rhetoric is currently deterring fresh bearish speculation on the JPY, hinting at potential government intervention.
- Less Dovish Fed Expectations: Several Fed officials have recently urged caution regarding further monetary easing due to a lack of clear economic data. This has led investors to scale back expectations for a December rate cut, providing a tailwind for the US Dollar and, consequently, the USD/JPY pair.
- Upcoming US Economic Data: USD bulls remain cautious, awaiting further clarity on the Fed’s rate-cut path. Market attention is firmly on the FOMC Minutes on Wednesday and the delayed US Nonfarm Payrolls report on Thursday for critical cues. Additionally, speeches from influential FOMC members later on Tuesday will be closely watched for immediate trading opportunities in USD/JPY.
USD/JPY Set for Further Appreciation, Eyes Breakout Past 155.00
From a technical standpoint, the USD/JPY pair’s overnight close above the psychological 155.00 level appears to have activated fresh bullish momentum. Daily chart oscillators remain in positive territory, with ample room before entering the overbought zone, indicating that the prevailing trend favors further upside. Consequently, a sustained move beyond the 155.60-155.65 intermediate resistance, with the aim of reclaiming the 156.00 round figure, seems highly probable.
Conversely, any corrective decline below the 155.00 mark is expected to encounter strong support, attracting new buyers around the 154.50-154.45 area. This zone is a crucial pivot; a decisive breach below it could trigger technical selling, pushing the USD/JPY pair towards the 154.00 psychological level. Further downside could extend to the next significant support zone near 153.60-153.50, eventually targeting the 153.00 mark.