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US and Japanese bulls take back the battle! Political infighting + paralysis of the central bank, the Japanese yen’s defense line is on the verge of collapse!
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Hello everyone, today XM Forex will bring you "[XM Forex]: US and Japanese bulls take back the battle! Political infighting + paralyzed central bank, the Japanese yen's defense line is on the verge of collapse!". Hope this helps you! The original content is as follows:
The US dollar against the yen continued its intraday gains during the European market on Thursday (October 16), recovering further from the more than one-week low (150.51) hit early Thursday morning, and is now trading around 151.13. The market speculates that the Bank of Japan may postpone further interest rate hikes in the context of domestic political uncertainty in Japan. This, coupled with generally positive risk sentiment, has become a key factor in weakening the safe-haven yen. In addition, a slight rebound in the U.S. dollar helped the U.S. dollar rebound against the yen.
A crack in the alliance between the ruling Liberal Democratic Party and the Komeito party has jeopardized Sanae Takaichi's prospects of becoming Japan's prime minister and eased market concerns about Japan's fiscal health. This development continues the market's expectations that the Bank of Japan will raise interest rates this year. The www.xmmen.combination of trade tensions and the reappearance of geopolitical risks may help limit the decline of the yen. On the other hand, the dollar may struggle to attract buyers amid bets that the Federal Reserve will cut interest rates further.
Political turmoil has intensified the policy variables of the Bank of Japan
The long-lasting ruling alliance between the Liberal Democratic Party and the Komeito party suddenly broke down last week. This break means that the newly elected president of the Liberal Democratic Party, Sanae Takaichi, needs to win the support of other parties before he can be confirmed as Japan's prime minister. As a champion of Shinzo Abe's economic policies, Sanae Takaichi advocates large-scale fiscal spending and monetary stimulus to support the economy. However, this political development has alleviated market concerns about Japan's fiscal health and provided support for the yen.
At the same time, as the opposition parties are actively negotiating to obtain the support needed to form a cabinet, the Japanese Congress has not been able to set a date for the election of a new prime minister. This uncertainty has brought challenges to the Bank of Japan to further raise interest rates.
Trade tensions have continued to escalate recently, and the United StatesPresident Trump bluntly stated that he has fallen into a "full-scale trade war."
In terms of geopolitics, US Secretary of War Pete Hegseth warned Russia to stop military operations or face a response that only the United States can make. This has intensified the risk of escalation of the Russia-Ukraine conflict and strengthened the safe-haven nature of the yen against the backdrop of expectations of an interest rate hike by the Bank of Japan.
Bank of Japan review member Naoki Tamura said on Thursday that Japan's economic growth rate is expected to increase, and the degree of overseas economic slowdown will not be as severe as initially expected. He emphasized that the central bank should push interest rates closer to neutral levels. This is in significant contrast to the market's firm expectations that the Federal Reserve will cut interest rates by 25 basis points in October and December. Coupled with concerns about the drag on the economy caused by the U.S. government shutdown, the dollar continues to be under pressure.
Notably, a federal judge on Wednesday temporarily barred the Trump administration from laying off federal workers during the shutdown, while the Senate failed for the ninth time to advance a House-passed Republican appropriations bill. The market is paying close attention to the speeches of many FOMC heavyweight officials later in the day to look for more clues about interest rate cuts, which will directly affect the trend of the US dollar and provide new direction guidance for the US dollar against the yen.
USD/JPY may find it difficult to return above the strong resistance level of 151.65
The overnight decline pushed USD/JPY below the 200 hour simple moving average (151.77), and then the exchange rate fell below 150.70 (the 38.2% Fibonacci retracement of the strong rebound from the October swing low), which is regarded as a key signal to trigger a short market.
However, the daily oscillator is in negative territory, indicating a short-term bearish bias.
On the downside, the exchange rate may find support near the psychological mark of 150.00, which coincides with the 50% Fibonacci retracement level. If it effectively falls below, it may drop to the 61.8% Fibonacci retracement level near 149.15.
On the upside, the exchange rate may be limited near the strong resistance level of 151.65 (including the breakthrough point of the 200 hour moving average and the 23.6% Fibonacci retracement level). The emergence of sustained buying will reverse the short-term bearish outlook and push the exchange rate back to the 152.00 integer mark, and then test the weekly swing high near 152.60.
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