- Bank of Japan policymakers changed their tone to be less hawkish.
- Most economists expect the central bank to reduce borrowing costs before the end of the year.
- The dollar rose on Wednesday after the ADP employment numbers rose more than expected.
The USD/JPI outlook shows a change in sentiment regarding a Bank of Japan rate hike following slightly dovish remarks that weakened the yen. At the same time, the US dollar strengthened after private employment data showed a resilient labor market.
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Bank of Japan policymakers changed their tone to be less hawkish. In particular, board member Asahi Noguchi said the central bank should take a cautious approach to hikes to avoid damaging the economy. Meanwhile, Prime Minister Shigeru Ishiba said the economy is not ready for higher borrowing costs.
At first, policymakers were enthusiastic about higher spending and inflation. As a result, most of them, including Ueda, expressed support for more rate hikes, which supported the yen. The recent change is likely to keep pressure on the Japanese currency. However, economists expect the central bank to reduce borrowing costs before the end of the year.
Meanwhile, the dollar rose on Wednesday after ADP employment figures rose more than expected, pointing to a tight labor market. Private companies employed 143,000 more workers in September. Economists expected 124,000 new jobs. This report followed job openings that rose more than expected. Resilience in the labor market is supporting a slow Fed easing cycle. Therefore, the probability of a 50 bps rate cut in November has fallen.
The next monthly employment change report could reshape the outlook for rate cuts. Another upbeat report will solidify bets for a smaller rate cut in November.
USD/JPI Key Events Today
- US unemployment claims
- US ISM services PMI
USD/JPI technical outlook: Channel resistance
On the technical side, the USD/JPI price has stalled near its bullish channel resistance line. It is trading well above the 30-SMA, a sign that the bulls are firmly in control. At the same time, the RSI is in the overbought region, showing solid bullish momentum.
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USD/JPI made a series of higher highs and lows forming a strong uptrend. However, after a solid run, the bulls may pause at channel resistance, allowing the bears to make a comeback. In that case, the price is likely to break down to revisit the channel support before bouncing higher or breaking below.
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