Investors' aversion to risk amid tensions in the Middle East and the demand for safe havens helped the USD/JPY currency pair stabilize around the 149.00 resistance level since the start of the crisis. In addition, there is still a discrepancy between the US Federal Reserve's strict policy and the Bank of Japan. The owner of the negative interest guarantees that the bulls control the performance.
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US Federal Reserve officials are heading towards another pause after rising yields. Senior Fed officials are rallying around the idea that tighter financial conditions following the recent rise in US Treasury yields may replace additional increases in benchmark interest rates. In this regard, Federal Reserve Vice Chairman Philip Jefferson said on Monday at a conference that he “will remain aware of the tightening of financial conditions through rising bond yields” in assessing the “future path of policy,” echoing similar comments from other policymakers in recent days.
The key question for officials is whether the recent increase in borrowing costs reflects investors' expectations for a stronger economy or just additional compensation needed to bear interest rate risk. Analysis of this data will likely keep them on hold at least until the next interest rate decision on November 1. Commenting on this, Yelena Shulyateva, chief US economist at BNP Paribas, said: “Suddenly, the markets did all the work for the Fed.” “The majority, including some of the more hawkish policymakers, appear to be OK with proceeding more cautiously.”
According to trading, yields on 10-year Treasury bonds rose by about 40 basis points since the US Federal Reserve’s policy meeting from September 19 to 20 - to 4.8% as of Friday’s close. (Cash trading was closed Monday for the Columbus Day holiday.) Benchmark yields fell by the most since March in Asia on Tuesday after dovish Federal Reserve comments and tension over the war between Israel and Hamas boosted demand for safe havens.
Forecasts published after the meeting showed that most officials expect another US rate hike will be needed this year - and smaller cuts next year - to bring inflation back to 2%. Earlier Monday, speaking at the same conference with Jefferson, Dallas Fed President Lori Logan noted that if risk premia in the bond market were rising, that “could do some work to calm the economy.” “For us, this reduces the need for motivation.” “In addition to additional tightening of monetary policy.”
Lujan's comments at the National Association for Business Economics' gathering are in line with similar statements from San Francisco Federal Reserve Bank President Mary Daly, who said on October 5 that "if financial conditions, which have tightened significantly in the past 90 days, remain tight , the need for our ability to take further action diminishes.
Investors currently see little chance of US interest rates rising in the period from October 31 to November. They assign less than equal odds for any further tightening in 2023, according to futures.
This is despite the monthly report published by the Bureau of Labor Statistics on Friday, which showed that US job growth is still much faster than expected. That temporarily raised the chances of another surge this year to above 50%, before a surprise attack on Israel by Hamas over the weekend sent them back. However, US inflation has declined this year, and forecasters generally expect the Bureau of Labor Statistics' monthly report on consumer prices due on October 12 to show a deeper slowdown in September, according to a Bloomberg survey.
Expectations for the US dollar against the yen today:
- There is no change in my technical view of the performance of the currency pair (USD/JPY), as the general trend is still upward.
- According to the ongoing strength factors, it does not rule out a move towards the psychological resistance level of 150.00 again.
- This is even more so if the US inflation figures come tomorrow and the content of the minutes of the last meeting of the US Federal Reserve today supports the path of tightening US monetary policy.
According to the performance on the daily chart below, there will be no first break in the general USD/JPY trend without moving towards the 147.50 support level first. Japanese intervention in the markets, if it occurs, will bring sharp sales to the currency pair.
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