The Japanese Yen continues to weaken, hitting a nine-month low, with expectations of the Bank of Japan raising interest rates being met with indifference

Weak Economic Data Dampens Market Expectations for BOJ Policy Shift

Japan’s Cabinet Office released third-quarter economic data on Monday, which became a key factor suppressing the yen. The data showed that Japan’s economy contracted by 0.4% quarter-on-quarter from July to September, marking the first negative growth in six consecutive quarters. On an annualized basis, GDP declined by 1.8% year-over-year during the same period, sharply contrasting with the 2.3% growth in the previous quarter. Although this report did not meet the most pessimistic market expectations, it was enough to prompt investors to reassess the likelihood of the Bank of Japan raising interest rates recently.

Prime Minister Sanae Takashi’s government is preparing a new round of fiscal stimulus aimed at alleviating the pressure on the public caused by rising living costs. Last week, Takashi announced plans to set new fiscal expenditure targets, reserving flexibility for spending in the coming years. This stance further weakened market bets on the BOJ implementing more aggressive monetary policy, leading to pressure on the yen, which continued to hover near a nine-month low during Monday’s Asian session.

Political Developments and Exchange Rate Risks Limit Yen Decline

Despite the yen facing depreciation pressures, Japanese authorities’ attention to the foreign exchange market has noticeably increased. Japanese Finance Minister Satsuki Katayama emphasized last week that they will closely monitor currency movements, while Economy Minister Kineuchi pointed out that yen depreciation could exacerbate inflationary pressures by raising import costs. These statements serve as market signals that authorities may intervene at appropriate times, to some extent curbing aggressive short positions.

Additionally, high-profile interactions between China and Japan regarding Taiwan have added some caution among forex investors. Risk aversion sentiment has provided technical support for the yen, preventing further rapid decline. Meanwhile, the USD/JPY currency pair remains relatively stable above the 154.00 mid-level, reflecting a temporary balance of bullish and bearish forces.

Fed Policy Shift Becomes a Strong Support for the Dollar

The resilience of the dollar stems from a new round of cautious language from Federal Reserve policymakers. An increasing number of Fed officials have issued signals of caution amid insufficient economic data, leading to a significant decline in market expectations for further rate cuts in December. This shift in sentiment directly benefits the dollar and provides upward momentum for USD/JPY. Although the risk of a US government shutdown raises concerns about economic momentum, these worries are currently insufficient to exert substantial downward pressure on the dollar.

Relatedly, markets will closely watch the release of US non-farm payrolls this Thursday. The FOMC meeting minutes and speeches by Fed officials will also be focal points, as traders seek clues about the future path of rate cuts, which should offer new guidance for the dollar.

Technical Outlook Points to Breakthrough of 155.00 Level as Key

From a technical perspective, USD/JPY rebounded from support at 153.60 (corresponding to the 4-hour chart’s 100-period simple moving average) last Friday and closed above the 154.45-154.50 range, boosting bullish confidence. The daily oscillators are in positive territory and far from overbought levels, leaving room for further expansion.

If USD/JPY can sustain buying pressure above the 155.00 psychological level, it will further confirm the bullish outlook, potentially pushing spot prices toward the 155.60-155.65 resistance zone, and possibly reaching the 156.00 round figure.

On the downside, a break below the immediate support at 154.00 is expected to attract more buyers, establishing new support around 153.60-153.50. If this zone is effectively broken, USD/JPY could test the 153.00 round figure. This level should be viewed as a short-term technical turning point; a decisive break could see bears regain control, with spot prices heading toward the next key support at 152.15-152.10.

It is worth noting that although this analysis mainly focuses on the interaction between the yen and the dollar, global forex participants are also closely watching emerging market currencies such as the rupee against the dollar to assess the durability of dollar strength and overall market risk appetite.