USD/JPY Struggles Below the 150.00 Mark; Anticipation Grows for Fed’s Powell Upcoming Address

In the recent trading activities, the USD/JPY currency pair displayed a noticeable wane in momentum, hovering around the 149.80 range during Thursday’s early European session. Analysts postulate that the potential downside of the currency pair could be kept in check due to a notable uptick in US Treasury bond yields. To provide perspective, the 10-year US Treasury yield has soared to an impressive 4.966%, marking its highest since 2007. Concurrently, the 2-year Treasury yield remains at a firm 5.246%.

With the week progressing, all eyes are set on the upcoming Japanese inflation data, scheduled to be released on Friday. This is particularly significant given the anticipation surrounding Japan’s National Consumer Price Index (CPI) excluding fresh food, which is projected to register a 2.7% YoY increase, a dip from the previous 3.1% figure.

Shifting focus to the US housing sector, data from Wednesday presented a mixed bag. While Building Permits for September declined to 1.475M, this outpaced the market’s consensus estimate of 1.45M. In contrast, Housing Starts only managed to reach 1.35M, falling short of the projected 1.38M, as per the data released by the US Census Bureau. In another significant update, the Federal Reserve’s Beige Book underscored a stable US economic outlook, with minimal changes observed between September and the early part of October. This stability hints that the Federal Reserve may remain steadfast in its current policy direction.

Adding to the financial discourse, prominent Federal Reserve officials have voiced their commitment to sustaining the current interest rate levels. Governor Christopher Waller of the Federal Reserve elucidated that it’s premature to conclusively ascertain the necessity for additional policy rate adjustments, emphasizing that such decisions will be largely influenced by incoming data. Echoing this sentiment, John Williams from the Federal Reserve Bank of New York highlighted the pressing need for a stringent monetary policy to temper inflation effectively.

Investor sentiment is also poised to be influenced by the impending speech by Fed Chair Jerome Powell. Any hawkish leanings expressed by Federal Reserve officials regarding the policy landscape could bolster demand for the US Dollar, providing support to the USD/JPY pair.

On the Japanese front, the Bank of Japan (BoJ) showcased optimism by enhancing its economic assessment for six of Japan’s nine regions in its recent quarterly report. This report illuminated a moderate recovery across all regions, although some areas exhibited stagnation in terms of exports and output.

In other developments earlier this week, Japanese Finance Minister Shunichi Suzuki refrained from discussing currency intervention. Meanwhile, Masato Kanda, a leading financial diplomat in Japan, underscored the continued perception of the Japanese Yen (JPY) as a stable asset, especially in light of the ongoing geopolitical unrest in the Middle East. Kanda further signaled that regulatory authorities are prepared to implement measures, including interest rate hikes or market intervention, in the face of excessive currency fluctuations. Such interventions, if executed, might curtail the USD/JPY pair’s upside potential.

As the week unfolds, market enthusiasts will be keenly monitoring the US Jobless Claims, the Philly Fed index, and the Existing Home Sales data, all slated for release on Thursday. Furthermore, Fed Chair Jerome Powell’s discourse will undoubtedly be a significant event, as will Friday’s unveiling of the Japanese National Consumer Price Index for September.