The Japanese yen continues to recover against the rest of the major currencies after Japanese media published a report expressing confidence that the end of the Bank of Japan's negative interest rate policy is approaching. Recently, this brought strong sales to the USD/JPY, pushing it towards the 146.66 support level, the lowest for the currency pair in more than two months. At the beginning of this month's trading, the currency pair moved towards the 151.90 resistance level, its highest level in more than a year, considering the discrepancy between the policy of the US Central Bank and the Bank of Japan.
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Generally, raising Japanese interest rates at a time when other central banks are expected to begin lowering interest rates may narrow the gap between Japanese government bond yields and yields elsewhere. Thus, it could allow the Japanese yen to return strongly against most other major currencies.
Also, what may have helped the Japanese currency is separate news that Japan's largest trade lobby, Keidanren, plans to hold discussions on the negative impact of a lower yen on the economy at its meeting in December. In the past, the lobby favoured a weaker yen because it made exports more competitive abroad. Thus, the shift to discussing the negative effects highlights the severity of the impact of the currency's recent decline on the economy.
On the other hand, the US dollar continued to trade under downward pressure, losing most of its strength against the yen and the Australian and New Zealand dollars, in that order. Clearly, it seems that expectations of the Federal Reserve making several cuts next year are still affecting the US currency, with new home sales data, which came weaker than expected yesterday, supporting investors’ views.
Obviously, according to Fed funds futures, market participants plan to cut US interest rates by about 90 basis points for next year, assigning a 50% chance of the first 25 basis point cut being delivered in May and pricing it in full for June. What will affect the outlook, Traders are now likely to await the core personal consumption expenditures index tomorrow, Thursday. Clearly, this measure is the Federal Reserve’s preferred one of US inflation. As, a further slowdown may increase the possibility of an interest rate cut in May and perhaps push the dollar lower.
However, investors will have the opportunity to hear from several Fed officials before the numbers are released, and it will be interesting to see whether they will push back on expectations of interest rate cuts but also whether the market will pay attention to such comments. Recently, market movements suggested that investors prefer to focus more on the data rather than the Fed's rhetoric. Therefore, even if policymakers decide to pour cold water on interest rate cut expectations, any rebound in the dollar due to their comments may remain limited and short-lived.
USD/JPY Technical analysis and Expectations Today:
According to the performance on the daily chart below, the downward shift in the US dollar against the Japanese yen (USD/JPY) is still underway, and the bears’ control over the trend will strengthen with the currency pair moving towards the support levels of 145.90 and 144.00, respectively. Clearly, this may happen if the results of the US economic data received from today come in. Even the end of the week is below expectations. Shortly over the same period, the bulls will not regain control of the trend without moving towards the psychological resistance level of 150.00 again.
