The Japanese Yen (JPY) experienced a retracement of its recent gains following the release of the Manufacturing Purchasing Managers Index (PMI) by Jibun Bank and S&P Global on Friday. Despite the JPY’s strength, the USD/JPY pair declined after Bank of Japan (BoJ) Governor Kazuo Ueda’s comments, which hinted at a possible interest rate hike in December, fueled market speculation.
The headline Jibun Bank Japan Manufacturing PMI stood at 49.2 in October, down from 49.7 in September. This reading indicates a contraction in manufacturing output as production and new order inflows continued to decrease at an accelerated rate, signaling potential challenges for Japan’s economy at the start of the fourth quarter. Chief Cabinet Secretary Yoshimasa Hayashi remarked that the BoJ is committed to aligning its monetary policy with government strategies to sustainably achieve its price target.
As traders eye the upcoming US Nonfarm Payrolls (NFP) report, expectations indicate that the US economy added 113,000 jobs in October, with the unemployment rate predicted to hold steady at 4.1%. Meanwhile, the USD/JPY pair regained some ground as the US Dollar (USD) ended its four-day losing streak, driven by market caution ahead of the forthcoming US presidential election.
However, the Greenback faced obstacles following the release of the Personal Consumption Expenditures (PCE) Price Index data on Thursday. The PCE Price Index revealed a year-over-year core inflation increase of 2.7% in September. Additionally, initial jobless claims fell to a five-month low of 216,000 for the week ending October 25, showcasing a robust labor market and reducing expectations for immediate rate cuts by the Federal Reserve.
In line with market expectations, the Bank of Japan maintained its short-term interest rate target at 0.25% after a two-day monetary policy review. According to the BoJ’s Q3 Outlook Report, the central bank intends to continue raising policy rates, provided that the economy and inflation align with its forecasts. The BoJ is focused on achieving its 2% inflation target sustainably.
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Despite some positive indicators from the US economy, including a 2.8% annualized expansion in GDP for Q3 and a significant rise in employment with 233,000 new jobs added in October, Japan faces a complex economic landscape. The Liberal Democratic Party’s (LDP) coalition recently lost its parliamentary majority, heightening uncertainty regarding the BoJ’s rate-hike plans.
Currently, the USD/JPY pair is trading around 152.40. Technical analysis suggests a potential softening of the bullish momentum, as the pair has breached its ascending channel. However, the 14-day Relative Strength Index (RSI) remains above the 50 mark, indicating that bullish momentum is still in play. Key resistance levels are observed at 152.50, while support is expected around the 14-day Exponential Moving Average (EMA) at 151.50 and the psychological level of 150.00.
As the market continues to navigate a complex interplay of economic indicators, traders will be watching closely for further developments that may influence the JPY and the broader currency landscape.
