Japanese Yen slips on bleak Household Spending figures; hawkish BoJ contains losses

• Weak Japanese data weighs on the JPY, allowing USD/JPY to edge higher.
• Renewed USD demand amid geopolitical uncertainty and Fed rate-rise expectations provides support.
• Hawkish BoJ expectations contain JPY losses as traders await fresh direction from US CPI.

Back above 158.00 during Tuesday's Asian session, USD/JPY recoups some of the previous day's decline as buyers emerge on dips. The pair nevertheless remains within the trading range established in early October, suggesting caution is warranted before taking sizeable directional positions.

A 6.8% year-on-year fall in Japan's Household Spending in September has weighed on the Japanese Yen (JPY), complicating the Bank of Japan's (BoJ) plans to raise interest rates further. The Internal Affairs Ministry's figures showed a 10th successive monthly decline and the steepest contraction since September 2020. A modest rise in the US Dollar (USD) has also helped underpin USD/JPY.

According to US President Donald Trump, progress towards ending the war on Iran is gathering positive momentum and renewed strikes are quite unlikely; he declared the conflict effectively over. That assessment contrasts with comments from Mohsen Rezaei, Secretary of Iran's Supreme National Security Council, who rejected reports of active negotiations as fake news. Rezaei also repeated that Washington must accept Tehran's seven conditions for ending the conflict. The resulting geopolitical risk premium continues to lend support to the USD's safe-haven appeal.

An increase in borrowing costs at the US Federal Reserve's (Fed) December meeting still carries a probability of over 80% in market pricing, according to the CME Group's FedWatch Tool. These expectations provide further backing for the dollar, with traders awaiting the latest US consumer inflation data for fresh direction and clues to the Fed's policy path. However, expectations of a hawkish BoJ and the risk of intervention could restrain JPY losses, limiting further gains in USD/JPY.

With underlying inflation having reached the central bank's 2% target, some policymakers urged a faster pace of interest rate rises, the Summary of Opinions from the BoJ's October monetary policy meeting showed. Against that backdrop, a more cautious approach would be to await follow-through buying and sustained trading above the mid-158.00s before taking sizeable bullish positions in USD/JPY. Conversely, a break below the 157.50 area is required to strengthen the case for further declines.

USD/JPY remains rangebound on the daily chart

Technical Outlook Remains Capped Below the 100-Day SMA

At 159.02, the 100-day Simple Moving Average (SMA) continues to constrain USD/JPY. Trading remains rangebound, leaving rallies exposed to selling pressure and suggesting that the broader corrective phase persists while the pair holds below this barrier. A decisive break above the 100-day SMA at 159.02, the first significant resistance on the upside, is needed to temper the prevailing bearish bias and pave the way for a more durable recovery.

(The technical analysis of this story was written with the help of an AI tool. Know more.)