The Japanese Yen (JPY) is showing slight upward movement against a weakening US Dollar (USD) during the Asian trading session on Monday. However, the currency remains trapped within a trading range that it has held for over a month. The recent political developments in Japan have introduced ambiguity regarding the timing and pace of interest rate hikes by the Bank of Japan (BoJ), which, along with a mostly positive sentiment in equity markets, dampens the appeal of the safe-haven Yen.
Despite these uncertainties, market sentiment remains largely confident that the BoJ will maintain its trajectory toward policy normalization. In contrast, traders are increasingly betting on the possibility of the US Federal Reserve (Fed) implementing more aggressive policy easing, which is contributing to the USD’s ongoing depreciation. The currency is hovering near its lowest levels since July 24, lending support to the lower-yielding JPY.
As the week progresses, traders are exercising caution ahead of two critical central bank events: the Fed’s rate decision and the BoJ’s policy update scheduled for Wednesday and Friday, respectively.
The political landscape in Japan has been shaken following Prime Minister Shigeru Ishiba’s resignation, adding another layer of uncertainty that may delay any upcoming interest rate hikes by the BoJ. Conversely, a recent trade agreement between the US and Japan has removed some uncertainties, while an upward revision in Japan’s Q2 GDP figures—along with a tightening labor market and rising real wages—supports the case for another rate hike this year.
On the geopolitical front, tensions continue as the US has called for further sanctions on Russia, alongside potential tariffs on nations perceived to be supporting Russia’s ongoing conflict in Ukraine. This comes in light of heightened military actions, including recent drone strikes involving NATO member Poland and Ukraine. Additionally, an Iranian lawmaker’s call for Qatar to expel US forces demonstrates an intensifying geopolitical climate, which often leads to increased demand for safe-haven currencies such as the Yen.
In the trading market, the USD languishes at subdued levels, amid a growing acceptance that the Fed is likely to reduce borrowing costs imminently. This sentiment contributes further to the support of the JPY against the Dollar.
As traders await further developments, the USD/JPY currency pair exhibits a range-bound price pattern, indicating indecision about its near-term direction. Analysts note that some caution is warranted due to neutral oscillators within the trading range. A critical level for bearish traders is identified below 147.00, which, if breached, could prompt further declines toward support levels at 146.30-146.20 and ultimately down to 145.00.
Conversely, any bullish movement would likely encounter resistance near the 148.00 mark. A breakthrough of this threshold could lift the USD/JPY pair towards the 200-day Simple Moving Average pegged around 148.75, marking a potential shift in market sentiment favoring bullish traders.
The upcoming days promise to be pivotal as monetary policy decisions from both the Fed and the BoJ could significantly influence the trajectory of the USD/JPY pair and overall market dynamics.
