Japanese Yen remains on the back foot against a broadly firmer USD

• The Japanese Yen attracts fresh sellers and stalls its recovery from a one-month low against the USD.
• BoJ rate hike ambiguity, domestic political uncertainty, and positive risk tone undermine the JPY.
• Rising Fed rate cut bets might keep a lid on the USD strength and USD/JPY ahead of the US NFP.

The Japanese Yen (JPY) meets with some supply during the Asian session on Thursday and stalls the recovery from a one-month low touched against its American counterpart the previous day. Investors remain divided over the likely timing and pace of Bank of Japan (BoJ) rate hikes amid tariff-related uncertainties. Furthermore, concerns about rising debt levels across major economies, including Japan, domestic political uncertainty, and a stable performance around the equity markets turn out to be key factors undermining the JPY.

Meanwhile, expectations that wages are set to rise further in a tight labor market – that could fuel demand-driven inflation – keep the door open for additional BoJ tightening. This marks a significant divergence in comparison to bets that the US Federal Reserve (Fed) will lower borrowing costs later this month, which could act as a headwind for the US Dollar (USD) and the USD/JPY pair. Traders might also refrain from placing aggressive bets and opt to wait for the release of the US Nonfarm Payrolls (NFP) report on Friday.

Japanese Yen is undermined by BoJ uncertainty and receding safe-haven demand

• Bank of Japan Deputy Governor Ryozo Himino warned on Tuesday that global economic uncertainty remains high, suggesting that the central bank is in no rush to push up still-low borrowing costs. However, BoJ Governor Kazuo Ueda on Wednesday showed readiness to continue raising interest rates if the economy and prices move in line with the central bank’s projections.
• Meanwhile, investors continue to bet that the BoJ could raise rates before year-end on the back of firm wage growth, still sticky inflation, and a brighter economic outlook. This, in turn, acts as a tailwind for the Japanese Yen during the Asian session on Thursday, though domestic political uncertainty caps the overnight recovery from a one-month low touched the previous day.
• The Japanese ruling party’s secretary general Hiroshi Moriyama’s intention to resign have stoked uncertainty around Prime Minister Shigeru Ishiba’s leadership. The announcement revived worries about Japan’s fiscal position and contributed to the recent surge in Japan’s 30-year government bond yield to a record high, well above the 3% mark, touched earlier this week.
• The US Bureau of Labor Statistics (BLS) published the Job Openings and Labor Turnover Survey (JOLTS) on Wednesday, which showed that the number of job openings on the last business day of July stood at 7.18 million. This followed the previous month’s downwardly revised reading of 7.35 million and came in well below the market expectation of 7.4 million.
• Nevertheless, the softer data increased the likelihood of the Federal Reserve cutting interest rates at the end of a two-day policy meeting on September 17. Moreover, traders are pricing in at least two 25 basis points rate cuts by the year-end, which, in turn, fails to assist the US Dollar to attract any meaningful buyers and should act as a headwind for the USD/JPY pair.
• Traders now look forward to Thursday’s US economic docket – featuring the ADP report on private-sector employment and ISM Services PMI. The focus, however, will remain glued to the official US monthly employment details – popularly known as the Nonfarm Payrolls (NFP) report – on Friday, which will drive the USD and provide a fresh impetus to the USD/JPY pair.

USD/JPY needs to find acceptance above 200-day SMA and 149.00 for bulls to seize control

The overnight failure to build on momentum beyond the 200-day Simple Moving Average (SMA) and a sharp pullback from the 61.8% Fibonacci retracement level of the downfall from the August monthly swing high favour the USD/JPY bears. That said, positive oscillators on the daily chart make it prudent to wait for acceptance below the 148.00 mark before positioning for deeper losses. Spot prices might then accelerate the fall to the 147.40 intermediate support en route to the 147.00 mark and the 146.70 horizontal zone. A convincing break below the latter would expose the August swing low, around the 146.20 region, before spot prices eventually test the 146.00 mark.

On the flip side, a positive move back above the 148.30-148.25 static barrier could lift the USD/JPY pair back towards the 200-day SMA, currently pegged near the 148.75-148.80 region. Some follow-through buying, leading to a subsequent strength beyond the 149.00 mark and the 149.20 area, or the 61.8% Fibo. retracement level, will be seen as a fresh trigger for bulls. Spot prices might then aim to reclaim the 150.00 psychological mark. The momentum could extend further towards challenging the August monthly swing high, around the 151.00 neighborhood.