The Japanese Yen weakened against the US Dollar. It pulled back from a one-week high, as a slew of mixed economic figures and recent government moves continue to affect market conditions. The USD/JPY currency pair faced multiple challenges near the mid-154.00 area. It did break support eventually, going below the important support 153.30-153.25. This technical movement raises big questions as to the short and long-term direction for the pair. At the same time, Japan’s new Prime Minister Sanae Takaichi is expected to adopt an economic stimulus package by late November designed to raise inflation and growth.
The current downturn in the USD/JPY currency pair is due to multiple factors at play. The pair had failed to hold above the mid-154.00s during the day and broke down overnight. This break under the support-turned-resistance zone of 153.30-153.25 signals more weakness could be on the way. Daily chart positive oscillators indicate that any further downside is apt to run into pretty good support. Support should now be near the 152.15-152.10 range.
Prime Minister Takaichi is currently preparing an economic stimulus package. This forward-looking initiative is designed to spark long-term economic growth and is projected to be valued at approximately $65 billion. This historic initiative is one of the best ways to reduce inflation and is already spurring economic growth. By late November, we intend to introduce a companion supplemental budget that will fund the package. It’s clear that the markets believe that these steps can go some way towards restoring confidence in the currency and a more positive overall economic outlook.
On another front, speculations regarding potential intervention by Japanese authorities to stabilize the Yen may temper bearish sentiment among traders. Atsushi Mimura, Japan’s Vice Finance Minister for International Affairs, highlighted that recent movements in the Yen deviate from fundamental economic indicators. His comments illustrate a concern that the Yen is falling too far, too fast. He hopes that some proactive interventions could come in the wake of this volatility continuing.
Despite these pressures, analysts indicate that a sustained strength beyond specific thresholds may enable the USD/JPY pair to reclaim the 154.00 mark. If this happens, it may open the door for additional progress to retest the 154.45 supply zone. The BoJ’s recent minutes from their September policy meeting released last week fueled hopes for an imminent rate move. Even if the proposed amendment does not make it into the final legislation, the ongoing debate could have major impacts on future currency shifts.
Japan’s latest household spending figures released for September muddied up this relatively rosy economic picture. This, along with strong employment, contributed to household spending growing at 1.8% on a year earlier. This was well below expectations, which had called for a 2.5% increase. On an annualized basis, it represented a disappointment from last month’s 2.3% increase. Such data only serve to stoke fears about consumer confidence and the pace of America’s economic recovery.
The US Dollar is in the process of bouncing back from recent weakness. This news arrives just as worries peak around economic perils, thanks to a historic, ongoing government shutdown in the United States. Market participants are closely watching these developments. More importantly, they are likely to have a hugely positive impact on the Dollar and Yen.