USD/JPY Rises on Cautious Powell & Dovish Japan PM
USD/JPY Analysis
The Bank of Japan had accelerated the Yen's rebound after hiking rates at the end of July and pointing to further tightening ahead. However, policymakers moved to a more reserved approach after last month's hold, removing guidance for further moves ahead [1]. The current political landscape doesn't favor aggressive action, as the country's new Prime Minister delivered a dovish message this week. PM Ishiba does not believe that further hikes are required, according to Reuters. [2]
After the Fed's jumbo pivot in September, Chair Powell sought to cool down hawkish market pricing around the easing path with a more cautious tone. He warned that "this is not a committee that feels like it is in a hurry to cut rates quickly" and pointed to "two more cuts" this year and a total of 50 basis points more [3]. Markets pricing came down to match Mr Powell's guidance and the Fed's updated projections.
USD/JPY extends it recovery from the dovish comments by Japan's new PM and Mr Powell's careful approach. It tries to take out the 38.2% Fibonacci of the July-September drop that would allow it to challenge 151.95.However, the upside does not look friendly, technically nor fundamentally.
Inflation (ex-fresh food) in Japan has been rising for the past four months and remains above the 2% target for more than two years, wages have increased substantially and GDP posted strong growth in Q2. One more rate hike within the year is still reasonable and BoJ officials still see more tightening if the economy evolves as projected. Chair Powell may have struck a more cautious tone, but officials still expect another 150 bps of cuts by the end of next year, so the policy differential remains unfavorable for USD/JPY.
Furthermore, the RSI points to overbought conditions and the daily Ichimoku Cloud poses another roadblock. A rejection of the pivotal 38.2% Fibonacci could send USD/JPY back below the EMA200 (black line), reaffirm the bearish bias and renew risk for lower lows towards the 137.22.
The next leg of the move will be determined by Friday's US jobs report. Further cooling will validate the Fed's shift and weigh on the pair, but upside surprise could have the opposite effect.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. With extensive experience in market analysis and a strong foundation in international relations, he brings a unique perspective to financial markets. Nikos emphasizes not only technical analysis but also on fundamentals and the growing influence of geopolitics on financial trends.
As a Senior Financial Editorial Writer, he delivers comprehensive and forward-looking insights across a wide range of asset classes, including equities, commodities, and currencies. His work explores how macroeconomic events, political developments, and global policies impact market dynamics, providing readers with a deeper understanding of both short-term movements and long-term trends.
References
| Retrieved 03 Oct 2024 https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2024/k240920a.pdf | |
| Retrieved 03 Oct 2024 https://www.reuters.com/markets/asia/bojs-ueda-says-unstable-markets-global-uncertainty-cause-vigilance-2024-10-02/ | |
| Retrieved 17 May 2026 https://www.youtube.com/live/fbp9cRgWrBk |
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