Japanese Yen weakens after dismal Household Spending data; hawkish BoJ limits losses

• USD/JPY gains some positive traction as dismal domestic data undermines the JPY.
• The geopolitical uncertainty and Fed hike bets revive USD demand and lend support.
• A hawkish BoJ limits JPY losses as traders now look to the US CPI for a fresh impetus.

The USD/JPY pair attracts some dip-buyers during the Asian session on Tuesday, climbing back above the 158.00 mark and reversing a part of the previous day's losses. Spot prices, however, remain confined within a familiar range held since early October, warranting caution before placing aggressive directional bets.

The Japanese Yen (JPY) weakens in reaction to dismal domestic data, which complicates the Bank of Japan's (BoJ) plans for further interest rate hikes. In fact, the Internal Affairs Ministry reported that Japan's Household Spending fell 6.8% from a year earlier in September, marking the 10th consecutive monthly decline and the sharpest drop since September 2020. Apart from this, a modest US Dollar (USD) uptick turns out to be another factor offering some support to the USD/JPY pair.

US President Donald Trump said that there is positive momentum towards ending the war on Iran, and that a resumption of strikes is quite unlikely, declaring the conflict effectively over. However, Mohsen Rezaei, Secretary of Iran’s Supreme National Security Council, dismissed reports of active negotiations as fake news and reiterated that Washington must accept Tehran's seven conditions to end the conflict. This keeps the geopolitical risk premium in play and supports the safe-haven USD.

Furthermore, the CME Group's FedWatch Tool indicates that traders are still pricing in over an 80% chance that the US Federal Reserve (Fed) will raise borrowing costs again in December. This offers additional support to the Greenback as traders now look to the latest US consumer inflation figures for more cues about the Fed's policy path and a fresh impetus. In the meantime, hawkish BoJ bets, along with intervention risks, could limit JPY losses and cap the upside for the USD/JPY pair.

In fact, the Summary of Opinions from the BoJ's October monetary policy meeting revealed that some policymakers called for speeding ​up the pace of interest rate ‌hikes as underlying inflation ‌reached the central bank's 2% target. This, in turn, makes it prudent to wait for some follow-through buying and sustained strength above mid-158.00s before placing aggressive bullish bets on the USD/JPY pair. On the flip side, weakness below the 157.50 area is needed to back the case for deeper losses.

USD/JPY daily chart

Technical Analysis

The USD/JPY pair keeps a capped tone below the 100-day Simple Moving Average (SMA) at 159.02. Moreover, spot prices remain confined in a range, suggesting rallies remain vulnerable to selling pressure, with the broader structure pointing to a still-corrective phase while price stays under that barrier. On the topside, the 100-day SMA at 159.02 is the first meaningful resistance and needs to be decisively overcome to ease the current bearish bias and open the way to a more sustained recovery.

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