The Japanese Yen (JPY) remains on the defensive for a second straight session on Friday, trading lower against a recovering US Dollar (USD). While downside risks appear contained by expectations of a hawkish Bank of Japan (BoJ), domestic political uncertainty and receding safe-haven demand continue to weigh on the currency.
BoJ-Fed divergence provides partial support
Investors remain confident that the BoJ will stick to its normalization path, with markets widely anticipating a rate hike later this month. This contrasts sharply with expectations that the US Federal Reserve (Fed) will deliver two rate cuts before year-end. The narrowing yield differential between Japan and the US could help limit JPY weakness and cap upside momentum in USD/JPY.
Political backdrop keeps JPY subdued
Fresh data showed Japan’s unemployment rate climbed to 2.6% in August, above forecasts of 2.4% and up from 2.3% previously. The figures, combined with uncertainty ahead of the Liberal Democratic Party leadership election on October 4, pressured the Yen during Asian trading. The outcome will set the tone for fiscal policy and could indirectly shape BoJ decisions in the near term. Market consensus leans toward Koizumi’s victory, while an upset win by Sanae Takaichi would likely trigger a stronger stock market reaction, according to IwaiCosmo Securities strategist Kazuaki Shimada.
Broader market tone favors USD
Risk appetite in Asia improved as regional markets tracked Wall Street’s record highs, further undermining the Yen’s safe-haven appeal. At the same time, the USD found support from Thursday’s rebound off the 100-day Simple Moving Average (SMA) near 146.60–146.55. That said, the US government shutdown continues to cloud sentiment, with Treasury Secretary Scott Bessent warning of potential negative impacts on growth, GDP, and labor markets.
Technical outlook: USD/JPY capped below 148.00
USD/JPY has held firm above 146.60 support but faces resistance near 148.00. A break higher could open the door toward the 200-day SMA at 148.35, with further upside targets at 149.00 and the 149.35–149.40 zone before a potential test of the 150.00 psychological barrier.
On the downside, initial support sits at 147.00, followed by the 146.60 pivot. Sustained weakness below these levels could drive the pair toward 146.00 and then the September lows around 145.50–145.45, with the 145.00 handle acting as a key floor.
