On Wednesday, the Japanese yen (JPY) saw an uptick against the US dollar (USD) after three days of declines. This strength in the yen came on the heels of Japan’s latest merchandise trade balance data, leading to a decrease in the USD/JPY pairing.
The trade deficit for September, reported by Japan’s Ministry of Finance, was 234.6 billion yen. This was a slight improvement from the 242.8 billion yen deficit in August (which was revised from an initial -242.5 billion) but fell short of market expectations for a 22 billion yen surplus.
Exports in Japan rose by 4.2% year-on-year, marking the first increase since April, although it was slightly below the expected 4.6% rise. On the other hand, imports increased by 3.3%, representing the highest level in eight months and ending a three-month descent, exceeding expectations that anticipated only a modest 0.6% uptick.
The yen encountered challenges following the election of Sanae Takaichi as Japan’s first female prime minister on Tuesday. Takaichi has promised to bolster Japan’s economy and defense capabilities, while also strengthening relations with the United States. Her election followed an agreement between the ruling Liberal Democratic Party (LDP) and the Japan Restoration Party to form a coalition government over the weekend.
USD Stabilizes Amid Ongoing Federal Government Shutdown
- Currently, the US dollar index (DXY), which gauges the USD’s strength against six major currencies, has been on a steady decline after recording gains in a previous session. It’s trading around 98.90. The dollar could face pressure amidst financial market uncertainty, given concerns about a prolonged federal government shutdown and potential delays in key U.S. economic indicators, including nonfarm payrolls (NFP).
- Markets are anticipating a nearly 99% probability that the Federal Reserve will cut rates in October and a 98% chance for another cut in December, according to the CME FedWatch tool.
- The U.S. government shutdown has entered its fourth week as the Senate failed, for the 11th time, to pass a House-approved bill aimed at funding the government and resolving the shutdown. The 50-43 vote predominantly split along party lines. This has now become the third longest funding lapse in modern history.
- St. Louis Fed President Alberto Moussallem expressed at the Association of International Finance’s annual meeting in Washington, D.C. that he may back further rate cuts if job risks grow and inflation remains contained. He emphasized the need for the Fed to adopt a balanced approach rather than adhering to a preset policy.
- Federal Reserve President Christopher Waller voiced his support for additional interest rate cuts in this month’s policy meeting. Meanwhile, new Fed President Stephen Milan reiterated his call for a more aggressive rate-cutting path through 2025 compared to what his colleagues have favored.
- Last week, Federal Reserve Chairman Jerome Powell indicated that interest rates would be cut by another quarter-point later this month, despite the government shutdown dramatically impacting the economic outlook. He mentioned that the pace of hiring has slowed and could take a further dip.
USD/JPY Stabilizes Around 152.00 Amid Bullish Bias
The Japanese yen gained ground against the US dollar, with USD/JPY trading near 151.70 on Wednesday. Daily technical analysis suggests a continuing bullish trend as the pair stays within an ascending channel pattern.
Looking upward, the initial resistance is at the eight-month high of 153.27, reached on October 10. If the pair surges past this point, it might target the upper boundary of the channel around 156.90.
Support is immediate at the 9-day exponential moving average (EMA) situated at 151.20. A break below this point could weaken short-term price momentum, leading USD/JPY to test the lower channel boundary near 150.00, followed by the 50-day EMA at 149.16. Further decreases might usher in a bearish outlook, pushing the price closer to the monthly low of 146.59.
USD/JPY Daily Analysis
In summary, as the dynamics of both currencies evolve, the market remains watchful, particularly regarding economic indicators and political developments.
