Although Japan's Producer Price Index (PPI) in October recorded its fastest rise in more than a year, investors generally believe that domestic political uncertainty will limit the scope for the Bank of Japan to raise rates again. Meanwhile, market concerns over U.S. President-elect Trump's potential high tariff policies negatively impacting Japan's economy have intensified, further weighing down the yen.
The incoming Trump administration is expected to implement expansionary economic policies, with inflation expectations pushing U.S. Treasury yields to remain near multi-month highs. This trend has weakened the yen's competitiveness, driving the USD/JPY exchange rate higher, which has reached its highest level since November 2023. Although there are concerns about yen intervention, the current impact on limiting the yen's decline seems minimal.
Additionally, U.S. inflation data released on Wednesday supported market expectations for the Federal Reserve to reduce rates by another 25 basis points in December, which may provide further support for USD/JPY. Technically, after breaking the 61.8% Fibonacci retracement level of the July-September decline, the USD/JPY closed successfully above the psychological level of 155.00 on Wednesday, indicating room for upward movement in the short term. Daily charts show oscillators remain in positive territory but not overbought, suggesting minimal resistance to the upside path for USD/JPY.
If USD/JPY breaks through the 156.00 mark, the next resistance area might be between 156.55-156.60, and could further test the psychological level of 157.00 and the resistance zone of 157.30-157.35.
However, if USD/JPY breaks below the 155.35-155.30 support area, it may retest the 155.00 mark. A sustained break below this level could trigger technical selling, dragging USD/JPY down to the mid-support zone of 154.55-154.50, and eventually testing the support areas of 154.00 and 153.80. If this level is effectively breached, the short-term upward trend might reverse, benefiting bearish traders.
Overall, despite the significant increase in Japan's PPI, the yen remains weak due to political uncertainty and interest rate differentials caused by U.S. expansionary policies, and the upward momentum of USD/JPY continues, with the market closely watching future policy directions.
