The USD/JPY pair continues to gain positive traction for the second consecutive day, indicating a potential further climb. The uncertainty surrounding future rate hikes by the Bank of Japan (BoJ) is weighing on the Japanese Yen (JPY), acting as a tailwind for the pair. At the same time, reduced expectations for a large rate cut by the Federal Reserve in November are supporting the US Dollar (USD).
The recent breakout momentum in the USD/JPY pair has pushed it above the 50-day Simple Moving Average (SMA), attracting follow-through buyers for the second day in a row. This positive movement marks the highest level since August 20, reaching the 147.20-147.25 region during the Asian session. Comments on monetary policy from Prime Minister Shigeru Ishiba and economy minister Ryosei Akazawa have contributed to the weakening of the JPY and bolstered the pair.
The USD’s strong recovery gains throughout the week have propelled it to a three-week high, fueled by diminishing odds of a more aggressive policy easing by the Fed. The market’s scaling back of expectations for a significant rate cut in November, along with positive economic data such as the upbeat ADP report, have supported the USD’s position. This, coupled with technical indicators showing a bullish outlook, suggests further upward movement for the USD/JPY pair.
From a technical perspective, the break and close above the 50-day SMA, along with positive oscillators on the daily chart, indicate a favorable outlook for the pair. Traders are now looking to key economic data from the US, including Weekly Initial Jobless Claims and the ISM Services PMI, as well as any comments from Fed officials. These factors are expected to provide momentum to the USD and influence the currency pair’s direction.
The Bank of Japan (BoJ) is the central bank responsible for setting monetary policy in Japan to ensure price stability. The bank’s ultra-loose monetary policy, implemented in 2013, aimed to stimulate the economy and fuel inflation. This policy, based on Quantitative and Qualitative Easing (QQE), involved buying assets like government or corporate bonds to provide liquidity. However, in 2024, the BoJ lifted interest rates, moving away from its ultra-loose policy stance.
The BoJ’s massive stimulus efforts led to the depreciation of the Yen against other major currencies, exacerbated by policy divergence with other central banks increasing interest rates to combat inflation. In 2024, the BoJ shifted its stance, causing some reversal in the Yen’s value. The weaker Yen, combined with rising global energy prices, contributed to Japanese inflation exceeding the 2% target set by the BoJ. The potential for increased salaries in Japan also influenced the rise in inflation in the country.
