Japanese Yen seems vulnerable amid diminishing odds for more BoJ rate hikes

• The Japanese Yen fails to build on the overnight strength amid the BoJ rate hike uncertainty.
  

• A positive risk tone also undermines the JPY, though subdued USD demand helps limit losses.
  

• The fundamental backdrop suggests that the path of least hurdle for the JPY is to the downside.
  

The Japanese Yen (JPY) struggles to attract any meaningful buyers during the Asian session on Friday, with the USD/JPY pair holding just below its highest level since early August touched the previous day. A drop in Japan's real wages for the first time in three months, a decline in household spending and signs that price pressures from raw material costs were subsiding raised doubts about the Bank of Japan's (BoJ) rate hike plans. This continues to undermine the JPY ahead of Japan's snap election on October 27 and turns out to be a key factor acting as a tailwind for the currency pair. 

Meanwhile, the initial market reaction to the hotter-than-expected US consumer inflation figures released on Thursday turned out to be short-lived amid indications of labor market weakness. Given that the Federal Reserve (Fed) has shifted its focus on obtaining maximum sustainable employment, a surge in the US jobless claims suggested that the US central bank will continue cutting interest rates. This keeps the US Dollar (USD) bulls on the defensive, below a nearly two-month top set the previous day, and caps the USD/JPY pair as traders await the release of the US Producer Price Index (PPI). 

Daily Digest Market Movers: Japanese Yen draws support from subdued USD price action, not out of the woods yet

Expectations that the Bank of Japan will be in no rush to lift borrowing costs fail to assist the Japanese Yen to capitalize on its modest recovery against the US Dollar, from over a two-month low touched on Thursday.

Furthermore, political uncertainty ahead of a snap election on October 27 in Japan, along with a generally positive risk tone, could undermine demand for the JPY and continue to act as a tailwind for the USD/JPY pair. 

The US Dollar shot to its highest level since mid-August after the US Labor Department reported that the core Consumer Price Index, which excludes food and energy prices, rose 3.3% on a yearly basis in September. 

Meanwhile, the headline CPI climbed 2.4% in the 12 months through September vs. 2.3% expected. This, however, was lower than the 2.5% in August and also the smallest year-on-year rise since February 2021.

Furthermore, the number of Americans seeking unemployment benefits surged 33,000, to a seasonally adjusted 258,000 for the week ended October 5 and pointed to initial signs of weakness in the US labor market. 

Investors now seem convinced that the Federal Reserve will continue cutting interest rates, which keeps the USD bulls on the defensive ahead of the release of the US Producer Price Index (PPI), due later this Friday.

Technical Outlook: USD/JPY seems poised to resume its recent uptrend and aim to reclaim the 150.00 psychological mark

From a technical perspective, last week's move beyond the 50-day Simple Moving Average (SMA) for the first time since mid-July and acceptance above the 38.2% Fibonacci retracement level of the July-September downfall favors bulls. Moreover, oscillators on the daily chart have been gaining positive traction and are far from being in the overbought territory, suggesting that the path of least resistance for the USD/JPY pair is to the upside. Hence, any subsequent fall is more likely to attract fresh buyers and should remain limited near the 148.00 mark. 

The latter should act as a key pivotal point, which if broken might prompt some technical selling and drag the USD/JPY pair to the 147.35 intermediate support en route to the 147.00 mark and the 146.50 area. On the flip side, the 149.00 round figure now seems to act as an immediate hurdle ahead of the overnight swing high, around the 149.55-149.60 region, above which bulls might aim to reclaim the 150.00 psychological mark. The momentum could extend further towards the 50% Fibo. level, around the 150.75-150.80 region.