How is a hawkish BoJ limiting Japanese Yen losses after dismal Household Spending data?

• USD/JPY edges higher as weak Japanese economic data weighs on the JPY.
• Renewed demand for the USD offers support amid geopolitical uncertainty and expectations of a Fed rate hike.
• JPY losses are contained by the BoJ's hawkish stance, with traders awaiting fresh direction from US CPI data.

Buying on dips lifts USD/JPY back above 158.00 during Tuesday's Asian session, recovering some of the previous day's decline. Despite the rebound, the pair continues to trade within the range established in early October, suggesting caution is warranted before taking aggressive directional positions.

Pressure on the Japanese Yen (JPY) follows weak domestic figures that complicate the Bank of Japan's (BoJ) plans to raise interest rates further. According to the Internal Affairs Ministry, Japan's Household Spending declined 6.8% year-on-year in September. This was the 10th successive monthly fall and the steepest since September 2020. A modest rise in the US Dollar (USD) provides a further source of support for USD/JPY.

Safe-haven demand continues to underpin the USD as conflicting statements keep the geopolitical risk premium intact. US President Donald Trump described positive momentum towards ending the war on Iran, said renewed strikes were quite unlikely and declared the conflict effectively over. In contrast, Mohsen Rezaei, Secretary of Iran’s Supreme National Security Council, rejected reports of active negotiations as fake news, reiterating that Washington must accept Tehran's seven conditions for ending the conflict.

Support for the Greenback also comes from expectations of another Fed rate increase. The CME Group's FedWatch Tool shows that traders continue to assign a probability of over 80% to the US Federal Reserve (Fed) raising borrowing costs again in December. Attention now turns to the latest US consumer inflation data for fresh direction and further insight into the Fed's policy trajectory. However, expectations of a hawkish BoJ and the risk of intervention could cushion the JPY's decline and restrict further gains in USD/JPY.

Calls to accelerate interest rate hikes emerged from some policymakers in the Summary of Opinions for the BoJ's October monetary policy meeting, as underlying inflation reached the central bank's 2% target. Against this backdrop, aggressive bullish positions in USD/JPY would warrant follow-through buying and sustained trading above the mid-158.00s. Conversely, a decline below the 157.50 area would be needed to strengthen the case for a deeper fall.

What does the USD/JPY daily chart show?

Technical Analysis: Can USD/JPY Clear Resistance?

Trading below its 100-day Simple Moving Average (SMA) at 159.02, USD/JPY remains constrained on the upside. The pair's range-bound movement leaves rallies exposed to selling, while the broader price structure continues to indicate a corrective phase beneath that barrier. At 159.02, the 100-day SMA represents the first significant resistance. A decisive break above it is required to temper the prevailing bearish bias and pave the way for a more durable recovery.

(The technical analysis of this story was written with the help of an AI tool. Know more.)