Market update: Japanese yen boosted by Fed’s hint to pause rate hikes and geopolitics

A path for the yen if BOJ remains hawkish

Dovish comments from US Federal Reserve Bank (Fed) officials coupled with the violence in Israel and Gaza have put a lid on US Treasury yields, boosting the Japanese yen.

Dallas Fed president Lorie Logan and Fed vice chair Philip Jefferson on Monday suggested that the sharp rise in yields has tightened financial conditions, lessening the need for further interest rate hikes. Markets are now pricing in around a 10% chance of a 25 basis points hike by the Fed when it meets next month, down from around a 28% chance a week ago. Moreover, the yen appears to have attracted some safe-haven bids on account of a flare up in geopolitical tensions.

USD/JPY technical analysis

The pause in the yen’s slide against the US dollar is a welcome sign as it hovers in the range that invited intervention by Japanese authorities last year. The yen has been under pressure as Bank of Japan (BOJ)’s persistent ultra-easy monetary policy diverges from its peers where central banks remain hawkish.

USD/JPY 240-minute chart

Having said that, unless global central banks take a step back from the hawkishness and/or BOJ steps up its hawkishness, the path of least resistance for the yen remains sideways to down.

USD/JPY daily chart

USD/JPY: 147.35 is key support

USD/JPY continues to hold under stiff resistance at the psychological 150 mark, not too far from the 2022 high of 152.00. A potential lower high created last week raises the risk of a test of the 200-period moving average to around a low of 147.35, seen in early October. This support is strong and may not break in the first attempt at least.

Given the buoyant upward momentum on the daily chart, the pair could continue to hover in the 147.00-150.00 range in the interim. However, any break below 147.35 would confirm that the broader upward pressure was easing.

GBP/JPY daily chart

GBP/JPY: bullish move ahead?

GBP/JPY is now testing key resistance at last week’s high of 183.00. Any break above could clear the path up to the August high of 186.75. Importantly, the cross’ hold above strong converged support on the 89-day moving average confirms that the broader trend remains up and the recent sideways price action is a pause, rather than a reversal of the uptrend.

AUD/JPY: range likely

AUD/JPY continues to hold above quite strong converged support at the 89-day moving average, the February high, and the lower edge of the Ichimoku cloud on the daily charts, as highlighted in the previous update. However, unless the cross clears the June high of 97.70 the path of least remains sideways at best.

AUD/JPY weekly chart

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