■The USD/JPY pair extends the overnight turnaround from over a one-week low.
■Fading safe-haven demand, along with the BoJ uncertainty, undermines the JPY.
■Bets for a less aggressive Fed easing lend some support to the USD and the pair.
The Japanese Yen (JPY) witnessed good two-way price moves on Tuesday and ended the day nearly unchanged against its American counterpart. Russia's announcement that it would lower its threshold for a nuclear strike drove some haven flows towards the JPY. The global flight to safety triggered a sharp fall in the US Treasury bond yields and further benefited the lower-yielding JPY, dragging the USD/JPY pair to over a one-week low, around the 153.30-153.25 region. The initial market reaction, however, faded rather quickly after comments from Russian and US officials helped ease market concerns about the onset of a full-blown nuclear war.
Adding to this, the uncertainty over the timing of further monetary policy tightening by the Bank of Japan (BoJ) continued to undermine the JPY and, to a larger extent, overshadowed a modest US Dollar (USD) weakness. The JPY remains depressed following the release of Trade Balance data from Japan and assists the USD/JPY pair to build on the overnight solid intraday recovery of over 150 pips. That said, speculations that Japanese authorities might intervene in the FX market to prop up the domestic currency, coupled with geopolitical uncertainties, might hold back the JPY bears from placing aggressive bets and act as a headwind for the pair.
Japanese Yen bears look to seize back control amid fading safe-haven demand, BoJ uncertainty
Russian President Vladimir Putin approved the change to the country's nuclear doctrine on Tuesday, days after US President Joe Biden authorized Ukraine to use long-range American missiles against military targets inside Russia.
Russian Foreign Minister Sergei Lavrov said the country would do everything possible to avoid the onset of a nuclear war and called Germany's decision on Monday not to provide long-range missiles to Ukraine a responsible position.
Meanwhile, the White House said that the United States (US) does not plan to adjust its own nuclear posture in response to Russia's move, which, in turn, tempered safe-haven demand and weighed on the Japanese Yen.
Bank of Japan Governor Kazuo Ueda earlier this week warned against keeping borrowing costs too low and signaled another interest rate increase, was vague on the timing and offered no hints about a hike in December.
A report published by the Ministry of Finance earlier this Wednesday showed that Japan's total exports increased by 3.1% and imports grew by 0.4% from a year earlier in October, resulting in a trade deficit of ¥461.2 billion.
Market participants have been anticipating slightly higher inflation after former President Donald Trump’s election victory, which was seen as a key trigger behind the recent sharp move up in the US Treasury bond yields.
Federal Reserve Bank of Kansas President Jeffrey Schmid noted on Tuesday that large fiscal deficits will not cause inflationary pressures because the central bank will prevent it, though that could mean higher interest rates.
The US Dollar consolidates its recent pullback from the year-to-date high and languishes near the weekly low, albeit, the downside remains cushioned in the wake of expectations of a less aggressive easing by the Fed.
Scheduled speeches by a slew of influential FOMC members later this Wednesday will influence the USD price dynamics and provide some impetus to the USD/JPY pair in the absence of any relevant US macro data.
USD/JPY needs to find acceptance above 155.00 to support prospects for further appreciation
From a technical perspective, the USD/JPY pair's overnight strong rebound suggests that the recent corrective slide from a multi-month high has run its course. The subsequent move up, along with the positive oscillators on the daily chart, supports prospects for a further appreciating move for spot prices. Bulls, however, need to wait for a sustained strength above the 155.00 mark before placing fresh bets.
Some follow-through buying beyond the weekly top, around the 155.35 area, will reaffirm the positive outlook and lift the USD/JPY pair to the 155.70 intermediate hurdle en route to the 156.00 round-figure mark. The momentum could extend further towards retesting the multi-month top, around the 156.75 region touched last Friday.
On the flip side, the 154.40-154.35 area now seems to protect the immediate downside ahead of the 154.00 mark. Any further decline might continue to find decent support near the 153.30-153.25 region, or the overnight swing low. This is followed by the 153.00 round figure and the next relevant support near the 152.70-152.65 area, below which the USD/JPY pair could drop to the very important 200-day Simple Moving Average (SMA), around the 151.90-151.85 region.
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