November 1, 2022 05:33 AM ET
By:AnalysisWatch
The USD/JPY encounters a fresh bid on Tuesday and falls to the mid 147.00s, or a new daily low during the first half of the European session. The pair, for now, appears to have stalled its recovery from the psychological 145.00 mark, or a near three-week low touched last Thursday, and is being pressured by a combination of factors.
The Japanese yen is receiving some support from speculation that the authorities may intervene again to soften any further sharp falls in the national currency. It is worth noting that, in October, Japan spent a record 6.3499 trillion on two consecutive days of unannounced monetary interventions. This, along with the emergence of some selling around the US dollar, is putting downward pressure on the USD/JPY pair.
Indeed, the dollar index, which measures the greenback's performance against a basket of six currencies, is failing to build on its recent rebound from a one-month low amid prospects of a less hawkish Fed.
Market participants now expect the US central bank to soften its hawkish stance amid signs of a slowdown in the US economy. This is reinforced by the current drop in US Treasury yields and weighs on the dollar.
However, the Federal Reserve remains on track for another 75 basis point rate hike-its fourth consecutive hike-at the end of its two-day policy meeting on Wednesday. In contrast, the Bank of Japan kept interest rates at record lows last Friday and reiterated that it would continue to guide the 10-year bond yield to 0%. This marks a major divergence between the two central banks and should offer some support for USD/JPY.
Traders may also be hesitant to make aggressive directional bets and prefer to sit out the risk of a key central bank event. In the meantime, Tuesday's US economic docket, featuring the release of the ISM manufacturing PMI, will be analyzed for short-term opportunities around USD/JPY.