USD/JPY opens near $154.90 as Japan’s Q3 GDP contracts 0.4 percent following last quarter’s 0.6 percent expansion, resulting in a notable annual decline of 1.8 percent. The yen immediately weakened with USD/JPY jumping from $154.56 to $154.63 after the GDP print, a sign traders were ready to buy any dip into the nine-month high at $155.044. The modest 0.1 percent private consumption figure, a decline from 0.4 percent in the previous quarter, indicates that increasing import costs are exerting downward pressure on household spending. As external demand declines by 0.2 percent, Japan’s export-dependent economy, characterized by a trade-to-GDP ratio exceeding 45 percent, faces structural vulnerabilities. Consequently, the yen begins the week with a weakened position, maintaining USD/JPY near the upper boundary of the intervention zone.
Prime Minister Sanae Takaichi’s push for fiscal expansion strengthens the belief that the BoJ is unable to tighten in a contracting economy. The new stimulus program from her administration, coupled with the resistance to rate hikes, provides USD/JPY with a distinct advantage due to policy divergence. Following Takaichi’s victory in the LDP election, USD/JPY has increased by 3.4 percent, reaching $154.52. Although intervention threats from Finance Minister Katayama have moderated the pace, they have not succeeded in reversing the overall trend. The recent increase in Japan’s import prices underscores the inflationary threats posed by a depreciating currency; however, decision-makers are leaning towards fiscal expenditure rather than tightening monetary policy. This introduces an additional dimension of potential growth for USD/JPY, as market participants perceive verbal cautions as temporary obstacles rather than indicators of a trend reversal.
USD/JPY continues to trade above the $154.45–$154.50 range as expectations regarding US interest rates evolve. Current market expectations reflect only three Federal Reserve rate cuts anticipated for the upcoming year, a decrease from over four, following a synchronized series of hawkish statements from the FOMC that have dampened prospects for a December reduction. This provides broad support for the US Dollar and stabilizes USD/JPY in anticipation of forthcoming US macroeconomic data. Market participants are exercising caution regarding short positions on the dollar ahead of the upcoming payrolls and FOMC minutes scheduled for this week. The strengthening of the dollar, driven by diminished cut odds, alongside the simultaneous weakening of Japanese data, is widening the policy gap and maintaining upward pressure on USD/JPY as it approaches $155.00. The usual relationship between USD/JPY and US yields has deteriorated as a result of an extended halt in US government data releases. In the absence of new macroeconomic indicators, USD/JPY moved independently of the US 2-year and 10-year yields. Nasdaq futures, VIX levels, and Japanese yields exhibited a lack of strong correlation as well. This week brings the anticipated release of US data, with the postponed September nonfarm payrolls set to arrive on Thursday. The previous trend indicated a decline in payrolls, leading to Federal Reserve cuts in September and October. If payrolls come in weak, markets might adjust their rate-cut expectations, which could exert short-term pressure on USD/JPY. However, robust payroll figures or solid wage growth would bolster the dollar aspect of the spread and drive USD/JPY past $155.05.
Traders in the USD/JPY market are now considering Nvidia’s earnings as a significant macro event. Nvidia’s impact on US indices shapes the demand for yen-funded carry trades. The organization consistently meets or exceeds revenue expectations and guidance, especially in the context of the AI surge. A positive performance coupled with a robust market response enhances risk appetite and propels USD/JPY towards $155.65, with the possibility of reaching $156.00. However, should Nvidia surpass expectations but not experience a rally, market participants may interpret this as a sign of fatigue within the AI sector. A risk-off shift could lead to a brief strengthening of the yen, putting downward pressure on USD/JPY, particularly if it coincides with disappointing payroll figures later this week. The USD/JPY is currently positioned within a narrowing ending wedge formation, having experienced an approximate 5.5 percent increase since April. Momentum indicators indicate tension: RSI displays bearish divergence as MACD crosses its signal line and begins to decline. Yet price action stays bullish above $153.60. Resistance stands at $155.00 followed by the wedge top at $155.15 and the Fibonacci 127.2 percent extension at $155.65. A break clears the path to 156.00. On the downside, trendline support at $154.00 and the $153.65 zone are crucial levels to monitor. A decline below $153.00 reveals further support at $152.85 and possibly $151.60. The wedge indicates that while upside progress may be gradual, it remains structurally advantageous.
Japanese authorities persist in issuing warnings regarding the weakness of the yen. Finance Minister Katayama emphasizes the need for urgent monitoring of foreign exchange, while Economy Minister Kiuchi points out the risk of inflation due to rising import costs. These warnings temporarily hindered USD/JPY, yet did not manage to alter the prevailing momentum. Market participants remember that previous interventions diminished in effectiveness when not supported by genuine policy changes. Given the contraction in Japan’s GDP, the weakening of consumption, increasing geopolitical tensions with China, and Takaichi advocating for heightened expenditure, it appears that significant tightening is improbable. Intervention risk thus functions as a friction point, rather than a catalyst for reversal. The macro divergence, shrinking Japanese GDP, collapsing consumption, rising import inflation, fiscal expansion in Tokyo, and fading Fed cut expectations collectively indicate a favorable outlook for USD/JPY movement. Provided that USD/JPY remains above $153.60, the outlook suggests a potential retest of $155.15 → $155.65 → $156.00.