The Japanese Yen (JPY) has gained traction on Monday as the US Dollar (USD) declines, influenced by rising uncertainties surrounding Tuesday’s US presidential election. However, JPY liquidity is somewhat constrained due to the closure of Japanese markets for Sports Day, which restricts physical trading of US Treasuries.
Market Dynamics
The JPY’s strength may face challenges ahead due to political and monetary policy uncertainties following last week’s parliamentary majority win by the Liberal Democratic Party (LDP) coalition. This victory has led to confusion regarding the future direction of the Bank of Japan‘s (BoJ) policies. Despite this, BoJ Governor Kazuo Ueda expressed in a post-meeting briefing last Thursday that decreasing economic risks in the US could open the door for potential rate hikes in Japan, although the BoJ maintained its policy rate at 0.25%, a widely anticipated decision.
US Economic Indicators
The recent release of weaker-than-expected Nonfarm Payrolls (NFP) data for October has contributed to the USD’s decline as the market anticipates the Federal Reserve’s interest rate decision later this week. According to the CME FedWatch Tool, there is a 99.6% probability that the Fed will implement a quarter-point rate cut in November.
The latest employment report showed that the US economy added just 12,000 jobs in October, significantly below market expectations of 113,000, while the unemployment rate remained steady at 4.1%. This disappointing data has heightened concerns regarding the strength of the US labor market and its implications for monetary policy.
Political Landscape
As the US presidential election approaches, the political landscape is heating up. A recent poll indicates that Vice President Kamala Harris holds slight leads in key battleground states like Nevada, North Carolina, and Wisconsin, while former President Donald Trump has a narrow advantage in Arizona. The poll reflects a tight race, with candidates in close contests in Michigan, Georgia, and Pennsylvania.
Economic Outlook
Japan’s Chief Cabinet Secretary, Yoshimasa Hayashi, emphasized on Friday the importance of coordinated efforts between the BoJ and the government to implement effective monetary policy aimed at achieving sustainable price stability. The latest au Jibun Bank Japan Manufacturing PMI reading of 49.2 indicates a contraction in Japanese manufacturing, signaling further challenges ahead.
In terms of support and resistance levels for the USD/JPY pair, trading is currently around 151.80. The pair has broken below its ascending channel, which suggests a potential weakening of bullish momentum. Immediate support is identified at the 14-day Exponential Moving Average (EMA) at 151.60, with further support around the psychological level of 150.00. Resistance is seen at the lower boundary of the ascending channel near 152.90. If the pair can re-enter the channel, it could target the recent high at 153.88, with an upper channel boundary near 158.90.
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