USD/JPY faces a critical juncture as it trades just above the 200-day moving average at 151.69, with the pair’s direction likely to be influenced by both Japanese political developments and shifts in U.S. economic data. Yen bulls appear to have the upper hand after USD/JPY failed to break the key 155 pivot level. Contributing to yen strength are ongoing warnings from Japanese officials about currency volatility and a recent surge in Japanese repatriation flows. Japanese investors sold a sizable $29.2 billion in foreign bonds and $7.7 billion in equities in the past week, signaling an increased preference for yen-denominated assets.
Technically, USD/JPY’s inability to surpass the 155 level has kept the bearish bias in play, with critical support at the 200-day moving average. Should the pair break below 151.69, it may pave the way for a test of the October lows near 150. A potential catalyst for further yen strength is the possibility of U.S.-Japanese policy rate convergence. With markets pricing in a Fed funds rate below 4% and a BOJ rate hike to 0.50% by July, the narrowing rate differential could weaken the dollar’s yield appeal, amplifying bearish momentum.
Looking ahead, a softer-than-expected U.S. CPI reading next week could reinforce expectations for a Fed rate cut in December, adding downward pressure on USD/JPY. Additionally, Japan’s political landscape is in flux, with upcoming parliamentary discussions around a new prime minister potentially influencing BOJ policy. Statements from Democratic Party for the People leader Yuichiro Tamaki, suggesting the BOJ delay rate hikes until wage growth exceeds inflation, indicate that political factors could add a layer of complexity to Japan’s monetary policy outlook, further supporting yen appreciation.