Japanese Yen extends the range play, hangs near multi-month low ahead of BoJ

• The Japanese Yen remains confined in a familiar range as traders keenly await the BoJ decision.
• The BoJ is expected to keep policy settings unchanged in the wake of domestic political uncertainty.
• The attention will then turn to the release of the US PCE Price Index later during the US session.

The Japanese Yen (JPY) extends its consolidative price move against its American counterpart on Thursday and remains close to a three-month low touched earlier this week. Traders opt to wait on the sidelines and refrain from placing aggressive directional bets ahead of the Bank of Japan (BoJ) policy decision later today. In the meantime, expectations that Japan’s political landscape could force expansionary fiscal policy, and make it difficult for the Bank of Japan (BoJ) to hike interest rates further, continue to act as a headwind for the JPY. 

That said, fears of possible government intervention and the cautious market mood offer some support to the safe-haven JPY. Apart from this, a subdued US Dollar (USD) price action keeps a lid on the USD/JPY pair through the Asian session. Meanwhile, bets for smaller interest rate cuts by the Federal Reserve (Fed) and deficit-spending concerns after the US election continue to push the US Treasury bond yields higher. This, in turn, favors the USD bulls and should contribute to capping the upside for the lower-yielding JPY.

Daily Digest Market Movers: Japanese Yen struggles to lure buyers amid diminishing odds of further BoJ rate hikes

• Government data showed this Thursday that Japan’s Industrial Production bounced after declining by 3.3% in August and rose 1.4% in September. The report also revealed that companies expect production to increase by 8.3% in October.
• A separate government report showed that Retail Sales increased by 0.5% from a year earlier in September, marking a sharp deceleration from the 3.1% rise in the previous month and pointing to a loss of momentum in consumption.
• This comes on top of a rare political turmoil after Sunday’s snap election in Japan that snatched the Liberal Democratic Party’s majority for the first time in 15 years and cast doubts over the Bank of Japan’s ability to hike rates further.
• Hence, the market focus will remain glued to the highly-anticipated BoJ monetary policy decision. The Japanese central bank is widely expected to leave policy settings unchanged and retain a cautious stance amid the political uncertainty.
• The US Dollar attracts some dip-buying and reverses a part of the previous day’s modest decline led by mixed economic data, which, in turn, keeps the USD/JPY pair close to its highest level since July 31 touched earlier this week. 
• The Automatic Data Processing (ADP) reported on Wednesday that private sector employers added 233K new jobs in October, better than the previous month’s upwardly revised reading of 159K and surpassing optimistic estimates. 
• The growth in employment is expected to boost consumer spending and contribute to overall growth, validating the view that the economy remains on strong footing and that the Federal Reserve will proceed with smaller rate cuts.
• Separately, the US Bureau of Economic Analysis’ initial estimate suggested that the world’s largest economy expanded by a 2.8% annualized pace during the third quarter, slower than the 3% growth recorded in the previous quarter. 
• The markets are pricing in the possibility that the Fed will lower borrowing costs by 25 basis points in November, which, along with deficit-spending concerns after the US election, remains supportive of elevated US bond yields.
• Later during the early North American session, the release of the Personal Consumption Expenditure (PCE) Price Index could provide fresh cues about the Fed’s interest rate outlook and influence the USD price dynamics. 

Technical Outlook: USD/JPY needs to decisively break through the 154.00 mark for bulls to retain near-term control

From a technical perspective, the recent repeated failures to find acceptance beyond the 61.8% Fibonacci retracement level of the July-September downfall warrant some caution for bulls. Moreover, the Relative Strength Index (RSI) on the daily chart is on the verge of breaking into the overbought zone. This further makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for additional gains. 

In the meantime, weakness below the 153.00 mark might continue to find some support near the 152.75-152.65 region ahead of the 152.40 area or the weekly low. Some follow-through selling could drag the USD/JPY pair to the 152.00 mark en route to the 151.45 support and the 151.00 mark. The downward trajectory could extend further towards challenging the 150.65 confluence resistance breakpoint, which should now act as a key pivotal point and a strong base for spot prices.

On the flip side, the 153.85-153.90 region now seems to have emerged as an immediate strong barrier. A sustained strength beyond, leading to a breakout through the 154.00 round-figure mark, has the potential to lift the USD/JPY pair towards the 154.35-154.40 supply zone en route to the 155.00 psychological mark. Spot prices could extend the momentum and eventually climb to test the late-July swing high, around the 155.20 region.