Harvest Global Markets :

On Monday, the USD/JPY experienced a minor slip of 0.03%, closing the day at 149.507. This followed a 0.17% loss from Friday when the pair closed at 149.507. During the trading session, the USD/JPY reached a low of 149.300 but later rebounded to achieve a session high of 149.762. Market attention remains firmly fixed on developments in the Middle East conflict, with hopes of diplomatic efforts to contain the situation tamping down demand for the safe-haven Japanese Yen on Monday. The ongoing Middle East conflict is a critical factor influencing the currency market. However, concerns persist that a regional and more extended conflict in the Middle East could reverse this trend, driving investors towards the Yen as a safer asset.

In particular, recent comments from Iran have garnered attention, as their involvement in the conflict could present the worst-case scenario for markets and risk sentiment. Any escalation or extension of the conflict could lead to increased demand for the Yen. While the Middle East conflict remains in focus, the Bank of Japan’s policies are also a hotly debated topic. Japan’s inflation numbers may spark speculation about a potential shift away from negative interest rates. Thus, commentary from the Bank of Japan regarding monetary policy will be closely monitored by the market.

On Tuesday, Japan’s economic indicators are scarce, which means there will be limited data to influence investor sentiment regarding the Bank of Japan’s policy goals. In the United States, retail sales data will take center stage. A rise in consumer spending would bolster expectations of a more aggressive interest rate path by the Federal Reserve and stimulate bets on a rate hike. Economists are forecasting a 0.3% increase in retail sales for September, compared to a 0.6% rise in August. An upward trajectory in consumer spending contributes to demand-driven inflation, which, in turn, puts pressure on the Federal Reserve to increase interest rates. Higher interest rates can affect borrowing costs and disposable income, potentially leading to a decrease in consumer spending.

In addition to economic data, comments from Federal Reserve officials are also critical. Members of the Federal Open Market Committee (FOMC), including John Williams, Michelle Bowman, and Thomas Barkin, are scheduled to speak. Should these members make hawkish remarks, it could boost demand for the US dollar. In the short term, the direction of the USD/JPY exchange rate will be strongly influenced by developments in the Middle East. If the conflict escalates, it is likely to favor the Japanese Yen. Conversely, if efforts to contain the situation are successful and there are hawkish comments from the Federal Reserve, the USD/JPY could trend towards 150.

Looking at the technical analysis, the USD/JPY currently sits above both the 50-day and 200-day Exponential Moving Averages (EMAs), indicating bullish price signals. A move towards 150 would provide an opportunity for the bulls to challenge the 150.293 resistance level. Positive retail sales data and hawkish comments from the Federal Reserve would bolster demand for the US dollar. However, unexpected declines in US retail sales or dovish statements from the Federal Reserve could put pressure on the USD/JPY.

In summary, the USD/JPY’s movements in the near term will largely hinge on developments in the Middle East and their impact on market sentiment. Furthermore, economic data and comments from Federal Reserve officials will play a significant role in determining the direction of the currency pair.