Japanese Yen weakens on political uncertainty; USD/JPY sits near one-month top on stronger USD

• The Japanese Yen retains its negative bias amid domestic political uncertainty and the BoJ’s rate hike plan.
• Some follow-through USD assists the USD/JPY pair to climb back closer to a one-month peak.
• The divergent BoJ-Fed expectations warrant some caution ahead of important US macro releases.

The Japanese Yen (JPY) selling bias remains unabated during the Asian session on Wednesday amid heightened domestic political and trade-related uncertainties. Furthermore, the lack of hawkish signals from Bank of Japan (BoJ) Deputy Governor Ryozo Himino on Tuesday seems to encourage speculators to continue building short JPY positions. Adding to this, some follow-through US Dollar (USD) uptick lifts the USD/JPY pair to the 149.00 neighborhood, or a one-month top touched the previous day.

Meanwhile, expectations that Japan’s tight labor market could fuel further wage gains and boost inflation keep hopes alive for an imminent rate hike by the BoJ before the year-end. This marks a significant divergence in comparison to bets that the Federal Reserve (Fed) will lower borrowing costs later this month, which could act as a headwind for the USD and cap the upside for the USD/JPY pair. Traders might also opt to move to the sidelines ahead of the release of the US Nonfarm Payrolls (NFP) report on Friday.

Japanese Yen bears retain control amid political uncertainty and mixed BoJ signals

• The Japanese ruling party’s secretary general, Hiroshi Moriyama, a close aide to Prime Minister Shigeru Ishiba, said on Tuesday he intends to resign from his post. Furthermore, Japanese media reported on Tuesday that former Prime Minister Aso Taro will publicly call for a new Liberal Democratic Party (LDP) presidential election on Wednesday.
• Bank of Japan Deputy Governor Ryozo Himino said on Tuesday the central bank should keep raising interest rates but warned that global economic uncertainty remains high. This, in turn, suggests that the BoJ is in no rush to push up still-low borrowing costs, which keeps the Japanese Yen depressed during the Asian session on Wednesday.
• Investors, however, seem convinced that the BoJ will stick to its policy normalization path as strong wage growth is expected to fuel demand-driven inflation. In contrast, traders are now pricing in around a 90% chance that the Federal Reserve will cut interest rates by 25 basis points at the end of a two-day policy meeting on September 17.
• The US Dollar trades with a positive bias for the second straight day and looks to build on the previous day’s solid recovery move from the vicinity of the August monthly swing low amid the global flight to safety. This further assists the USD/JPY pair to retain its bullish bias and aim for a breakout through the 200-day Simple Moving Average.
• Traders now look forward to the release of the US JOLTS Job Openings data for some impetus later during the North American session. This week’s US economic docket also features the ADP report on private-sector employment and ISM Services PMI on Thursday. The focus, however, will remain glued to the US Nonfarm Payrolls report on Friday.

USD/JPY looks to build on strength beyond 200-day SMA barrier; move beyond 149.00 awaited

Some follow-through buying beyond the 200-day SMA and acceptance above the 149.00 mark will confirm a bullish breakout through a one-month-old trading range. Given that oscillators on the daily chart have just started gaining positive traction, the USD/JPY pair might then accelerate the positive move towards the next relevant hurdle near the 149.55-149.60 region. The momentum could extend further towards reclaiming the 150.00 psychological mark before spot prices eventually aim to challenge the August monthly swing high, around the 151.00 neighborhood.

On the flip side, the Asian session low, around the 148.30-148.25 region, could offer immediate support ahead of the 148.00 round figure. A convincing break below the latter could drag the USD/JPY pair to the 147.40 intermediate support en route to the 147.00 mark and the 146.70 horizontal zone. Failure to defend the said support levels might shift the bias back in favor of bearish traders and expose the August swing low, around the 146.20 region, before spot prices slide to the 146.00 mark.