Japanese Yen plummets to its lowest level since late July as Trump trade boosts USD

06 Nov 2024, 01:09 by Haresh Menghani · FXStreet

The Japanese Yen fails to capitalize on the hawkish BoJ minutes-led intraday uptick.
The BoJ rate-hike uncertainty and the risk-on impulse weigh heavily on the JPY.
The US election results trigger a sharp rise in the US bond yields and the USD.

The Japanese Yen (JPY) continues losing ground against its American counterpart and slumps to its lowest level since late July during the Asian session on Wednesday. The initial market reaction to hawkish Bank of Japan (BoJ) meeting minutes turned out to be short-lived amid a sharp intraday surge in the US Treasury bond yields, which tends to drive flows away from the lower-yielding JPY.

Moreover, market players seem convinced that Japan's political landscape could make it difficult for the BoJ to hike interest rates further. Apart from this, the risk-on impulse, bolstered by rising odds of a win for former US President Donald Trump, which, along with a strong pickup in the US Dollar (USD) demand, contributes to the USD/JPY pair's intraday rally of over 300 pips.

Daily Digest Market Movers: Japanese Yen selling bias remains unabated on the back of broad-based USD strength

The minutes of the September Bank of Japan policy meeting showed that the central bank plans gradual policy rate increases, though it remains cautious about overseas economic uncertainties, especially from the US.
This comes on top of BoJ Governor Kazuo Ueda's hawkish remarks last week and keeps the door open for additional rate hikes, which, in turn, provides a modest lift to the Japanese Yen during the Asian session.
The initial market reaction, however, turns out to be short-lived and fades rather quickly amid doubts over the BoJ's ability to tighten its monetary policy further in the wake of the political uncertainty in Japan.
The US Dollar rallies across the board after exit polls indicate an early lead in key swing states for the Republican nominee Donald Trump, triggering a sharp surge of nearly 250 pips for the USD/JPY pair.
Rising odds of Trump winning the election fuel speculations about the launch of potentially inflation-generating tariffs, which, along with deficit-spending concerns, push the US Treasury bond yields sharply higher.
The yield on the benchmark 10-year US government bond spikes to its highest level since July, contributing to the strong bid tone surrounding the USD and driving flows away from the lower-yielding JPY.

Technical Outlook: USD/JPY move beyond 154.00 mark sets the stage for a further appreciating move

From a technical perspective, strength beyond the 153.85-153.90 region and the 154.00 mark could be seen as a fresh trigger for bullish traders. Given that oscillators on the daily chart are holding in the positive territory, spot prices might now climb to the next relevant hurdle near the 154.60-154.70 area before aiming to reclaim the 155.00 psychological mark.

On the flip side, the 152.30 area now seems to protect the immediate downside ahead of the 152.00 mark and the Asian session low, around the 151.30-151.25 region. This is followed by the 151.00 round figure, below which the USD/JPY pair could slide towards the 100-day Simple Moving Average (SMA) resistance breakpoint, now turned support, around the 150.25 region. Some follow-through selling, leading to a break below the 150.00 psychological mark, will shift the near-term bias in favor of bearish traders and pave the way for deeper losses.

Economic Indicator

BoJ Monetary Policy Meeting Minutes

The Bank of Japan publishes a study of economic movements in Japan after the actual meeting. These meetings are held to review economic developments inside and outside of Japan and indicate a sign of new fiscal policy. Any changes in this report tend to affect the JPY volatility. Generally speaking, if the BoJ minutes show a hawkish outlook, that is seen as positive (or bullish) for the JPY, while a dovish outlook is seen as negative (or bearish).