The yen is fluctuating near an eight-month low. Why is the Bank of Japan still hesitating amid the "devaluation storm"?
2025-10-31 14:14:27
The US dollar remained relatively strong against the Japanese yen on Friday (October 31), but lacked bullish momentum, hovering near the highest level since February (154.44) reached in the previous trading session. Data released on Friday showed that inflation in the Tokyo area accelerated, providing a basis for the Bank of Japan to further tighten its policy.
However, market uncertainty regarding the timing of the Bank of Japan's next interest rate hike, stemming from market expectations that Prime Minister Sanae Takaichi will implement an aggressive fiscal spending plan, has limited the yen's appreciation.
In addition, the optimism brought about by the easing of trade tensions has also become another factor weakening the demand for the safe-haven yen.
On the other hand, the dollar index consolidated below its highest level since early August (99.72) due to the Federal Reserve's hawkish stance, which further limited the downside potential of USD/JPY.
However, market speculation suggests that Japanese authorities may intervene to prevent further depreciation of the yen, which could curb new short positions and halt the two-week downtrend.
Japan's Ministry of Internal Affairs and Communications reported on Friday that Tokyo's consumer price index rose 2.8% year-on-year in October from 2.5% in September. Furthermore, the core CPI, excluding fresh food, climbed to 2.8% year-on-year during the reporting period, up from 2.5% in September.
More noteworthy is that the core CPI, which excludes fresh food and energy prices (an indicator that has been above the Bank of Japan's 2% policy target for three and a half years), rose from 2.5% to 2.8%. These figures provide a basis for the Bank of Japan to continue its gradual interest rate hikes, thus offering mild support for the yen.
Despite two dissenting votes, the Bank of Japan kept interest rates unchanged at its two-day meeting that concluded on Thursday, with policymakers Naoki Tamura and Hajime Tabata insisting on raising the rate to 0.75%. Bank of Japan Governor Kazuo Ueda emphasized at the post-meeting press conference that there were "no preconceived notions" regarding the timing of the next rate hike.
Furthermore, the pro-stimulus stance of Japan's new Prime Minister Sanae Takaichi may lead the central bank to postpone further interest rate hikes, which could become a headwind for the yen. On the other hand, the US dollar is supported by the Federal Reserve's hawkish leanings, which is expected to limit the downside potential of USD/JPY.
The Federal Reserve cut its benchmark lending rate for the second time this year to a range of 3.75%-4%, but Chairman Powell made it clear that further rate cuts at the December meeting are not a given. The market reacted quickly, reducing bets on continued easing this year, pushing the dollar to its highest level since early August (99.72) on Thursday, and the dollar/yen pair also climbed to an eight-month high (154.44).
The US government shutdown has entered its 31st day as a Republican-backed funding bill in Congress remains deadlocked, exacerbating economic concerns after the Senate rejected a Republican temporary funding proposal 13 times, which aimed to keep the government open until November 21. This situation is dampening aggressive bets by dollar bulls. Markets are closely watching speeches by key members of the Federal Open Market Committee for clues about the future path of interest rate cuts and new trading momentum.
From a technical perspective, the USD/JPY pair broke through the 153.25-153.30 range (the previous month's high) in the previous trading session and subsequently held above the 154.00 level, becoming a key catalyst for the USD/JPY bullish trend.
The daily chart's oscillators are firmly in the positive range and have not entered the overbought zone, which provides conditions for the exchange rate to find support from bargain hunters at lower levels.
On the upside, the initial resistance for the exchange rate is at 154.50, with an advance towards the 154.75-154.80 range, and ultimately a challenge of the psychological level of 155.00.
On the downside, if the exchange rate breaks below the support zone of 153.30-153.25, which previously acted as resistance, it may test the overnight low near 152.15. A subsequent break below 152.00 would reverse the recent bullish outlook, opening the way for a move towards the 151.55-151.50 area, and potentially ultimately towards the key support zone of 151.10-151.00.
(USD/JPY daily chart, source: FX678)
At 14:14 Beijing time, the US dollar was trading at 153.97/98 against the Japanese yen.
However, market uncertainty regarding the timing of the Bank of Japan's next interest rate hike, stemming from market expectations that Prime Minister Sanae Takaichi will implement an aggressive fiscal spending plan, has limited the yen's appreciation.
In addition, the optimism brought about by the easing of trade tensions has also become another factor weakening the demand for the safe-haven yen.
On the other hand, the dollar index consolidated below its highest level since early August (99.72) due to the Federal Reserve's hawkish stance, which further limited the downside potential of USD/JPY.
However, market speculation suggests that Japanese authorities may intervene to prevent further depreciation of the yen, which could curb new short positions and halt the two-week downtrend.
The yen lacks bullish momentum amid uncertainty surrounding central bank interest rate hikes and fiscal concerns.
Japan's Ministry of Internal Affairs and Communications reported on Friday that Tokyo's consumer price index rose 2.8% year-on-year in October from 2.5% in September. Furthermore, the core CPI, excluding fresh food, climbed to 2.8% year-on-year during the reporting period, up from 2.5% in September.
More noteworthy is that the core CPI, which excludes fresh food and energy prices (an indicator that has been above the Bank of Japan's 2% policy target for three and a half years), rose from 2.5% to 2.8%. These figures provide a basis for the Bank of Japan to continue its gradual interest rate hikes, thus offering mild support for the yen.
Despite two dissenting votes, the Bank of Japan kept interest rates unchanged at its two-day meeting that concluded on Thursday, with policymakers Naoki Tamura and Hajime Tabata insisting on raising the rate to 0.75%. Bank of Japan Governor Kazuo Ueda emphasized at the post-meeting press conference that there were "no preconceived notions" regarding the timing of the next rate hike.
Furthermore, the pro-stimulus stance of Japan's new Prime Minister Sanae Takaichi may lead the central bank to postpone further interest rate hikes, which could become a headwind for the yen. On the other hand, the US dollar is supported by the Federal Reserve's hawkish leanings, which is expected to limit the downside potential of USD/JPY.
The Federal Reserve cut its benchmark lending rate for the second time this year to a range of 3.75%-4%, but Chairman Powell made it clear that further rate cuts at the December meeting are not a given. The market reacted quickly, reducing bets on continued easing this year, pushing the dollar to its highest level since early August (99.72) on Thursday, and the dollar/yen pair also climbed to an eight-month high (154.44).
The US government shutdown has entered its 31st day as a Republican-backed funding bill in Congress remains deadlocked, exacerbating economic concerns after the Senate rejected a Republican temporary funding proposal 13 times, which aimed to keep the government open until November 21. This situation is dampening aggressive bets by dollar bulls. Markets are closely watching speeches by key members of the Federal Open Market Committee for clues about the future path of interest rate cuts and new trading momentum.
USD/JPY bulls may still have the upper hand.
From a technical perspective, the USD/JPY pair broke through the 153.25-153.30 range (the previous month's high) in the previous trading session and subsequently held above the 154.00 level, becoming a key catalyst for the USD/JPY bullish trend.
The daily chart's oscillators are firmly in the positive range and have not entered the overbought zone, which provides conditions for the exchange rate to find support from bargain hunters at lower levels.
On the upside, the initial resistance for the exchange rate is at 154.50, with an advance towards the 154.75-154.80 range, and ultimately a challenge of the psychological level of 155.00.
On the downside, if the exchange rate breaks below the support zone of 153.30-153.25, which previously acted as resistance, it may test the overnight low near 152.15. A subsequent break below 152.00 would reverse the recent bullish outlook, opening the way for a move towards the 151.55-151.50 area, and potentially ultimately towards the key support zone of 151.10-151.00.
(USD/JPY daily chart, source: FX678)
At 14:14 Beijing time, the US dollar was trading at 153.97/98 against the Japanese yen.
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