Yen Rebound Momentum Emerges as Investors Prepare in Advance
On Tuesday, during the Asian early trading session, the yen made a strong recovery against the dollar. The USD/JPY fell from 153.30 to below 152, marking the largest single-day drop in nearly two weeks. Investors are actively adjusting their positions ahead of policy meetings by the Federal Reserve and the Bank of Japan, with some short sellers opting to take profits, significantly increasing short-term demand for the yen.
The market generally believes that the recent frequent release of "exchange rate stability" signals by Japanese officials may be paving the way for potential intervention. Japan's Economic Revitalization Minister, Minoru Kiuchi, stated that exchange rates should reflect economic fundamentals, and the government will closely monitor the economic impact of exchange rate fluctuations. This statement is seen as "verbal intervention," intensifying market speculation about potential Japanese intervention.
A Tokyo forex market trader indicated that the short-term rebound of the yen is more due to investors' "defensive operations," but if the Bank of Japan hints at an intention to raise interest rates, the USD/JPY may further retreat to the 150 level.
Japan's Service Sector Inflation Accelerates, Strengthening Policy Shift Expectations
The latest data shows that Japan's September Service Producer Price Index (SPPI) rose 3.0% year-on-year, accelerating growth for the second consecutive month, reflecting a continuing trend of rising costs in the service industry.
Economists believe this change in inflation structure indicates that price pressures are spreading from imported goods to domestic services, demonstrating inflation's more endogenous and persistent nature.
Tokyo Forex Institute economist Shunsuke Takahashi pointed out: "The rise in service sector prices indicates that Japan's inflation is no longer solely driven by exchange rates but is supported by wage growth and a recovery in consumption. If this trend continues, the Bank of Japan will be forced to gradually exit its ultra-loose policy."
The market generally expects the Bank of Japan to release clearer signals at its December meeting, possibly even implementing a "symbolic interest rate hike" in early 2025 to adjust its long-term negative interest rate framework.
Federal Reserve May Start a New Round of Rate Cuts
In contrast to the Bank of Japan's potential tightening stance, U.S. monetary policy is evolving in the opposite direction. The Federal Reserve's two-day meeting will conclude on Wednesday, with the market widely expecting a 25-basis-point rate cut, adjusting the interest rate range to 3.75%-4.00%.
According to the CME FedWatch Tool, there is a nearly 95% probability that investors expect another Fed rate cut this year. Analysts note that risks of a U.S. government shutdown and weak employment growth are prompting policymakers to adopt preemptive easing to hedge against downward economic risks.
This has significantly weakened dollar buying, slowing the upward momentum of the dollar against the yen. Analysis institutions believe that if the Federal Reserve sends more dovish signals, the USD/JPY may continue to fall this week.
Policy Differences Dominate Short-Term Fluctuations
Despite inflation data and policy expectations supporting the yen, the market remains wary of Japan's new Prime Minister Sanae Takaichi's fiscal stance. Her expansionary spending plans may offset the tightening impact of interest rate hike expectations in the short term.
Analysts point out that if Takaichi's fiscal stimulus measures are substantial, it will increase the government debt burden, forcing the Bank of Japan to be more cautious when adjusting interest rates. "This means that even if the BoJ hints at exiting negative interest rates, actual action may be delayed."
Meanwhile, the weakness on the dollar side may be partially offset in the short term by changes in U.S. Treasury yields. If U.S. bond yields rise, the dollar may still gain support, thereby limiting the USD/JPY's downward space.
Technical Bias is Bearish, Yen May Extend Correction Trend
From a technical perspective, the USD/JPY has formed a double top pattern in the 153.30 region, indicating notable short-term top pressure. If the exchange rate remains below 152.00, short-sellers may aim for the 151.50 and 151.00 support levels. If it breaks below 151.00, the exchange rate may enter a deeper adjustment range, with the next target around 150.50.
On the upside, resistance is concentrated in the 153.00 to 153.30 range, and if this range is breached, the psychological 154.00 level may be tested again. Indicators show that RSI has fallen below the midpoint, and MACD's death cross is expanding, indicating short-term bearish momentum dominance.
Yen Stability Still Requires Policy Validation
Overall, rising service sector inflation does provide fundamental support for the yen, but real market confidence depends on whether the Bank of Japan clearly signals a rate hike. If the BoJ's attitude remains ambiguous, the yen's rebound may be short-lived.
Against the backdrop of Fed rate cuts and rising Japanese inflation, the USD/JPY's trajectory in the coming weeks will serve as a microcosm of global monetary policy divergence. Investors generally believe that the outcomes of this week's meetings by the two major central banks will determine whether the yen can transition from a rebound to a true trend reversal.
