• USD/JPY outlook remains weak on Tuesday, driven by FX intervention warnings.
• Stimulus package and Tokyo’s verbal warnings keep the USD/JPY in a delicate balance.
• Markets eye US PPI data that could provide fresh insight for Fed’s rate cut in December.

The USD/JPY outlook edged lower on Tuesday as the Japanese yen regained some strength amid intensifying signals of FX intervention from Tokyo. Yen finally saw a mild relief after weeks of depreciation when government officials issued a strong verbal warning.

Satsuki Katayama, Japan’s Finance Minister, delivered a forceful statement on Friday, cautioning that authorities “will not hesitate to act if markets show disorderly behavior”. This was more restrained language than the previous, showing that Tokyo is actively monitoring the situation.

The pressure increased further when Takuji Aida, a member of the government advisory panel, noted that Japan could intervene without delay to safeguard the economy from excessive yen weakening. His comments reinforced expectations that the government could resort to a yen-buying operation if speculative pressure increases.

Political developments have also contributed to the yen’s weakness, as the new Prime Minister, Sanae Takaichi, is pro-stimulus, introducing a $135 billion package. Markets worry that the increased debt load could delay the Bank of Japan’s monetary tightening, prolonging structural weakness. The yen has fallen 6% since she took office.

Meanwhile, central bank divergence also remains a tailwind for the USD/JPY as the Bank of Japan maintains its ultra-loose monetary policy. In contrast, the US Federal Reserve remains significantly tighter. Widening rate differentials encourage outflows from Japan. However, the recent Fed commentary from New York President Williams, pointing to labor weakness as a key concern, brought back the odds of a rate cut in December, weighing on the dollar.
 

USD/JPY Key Events Ahead

A significant event on Tuesday is the US PPI data, which will reveal wholesale inflation and also reflect business activity. A downtick could reinforce the odds of a rate cut, providing room for the yen to strengthen against the dollar.
 

USD/JPY Technical Outlook: Sellers Looking at 155.90
 

(Click on image to enlarge)

USD/JPY 4-hour chart
 

The 4-hour chart shows a building bearish pressure, forming small candles under the 20-period MA. The pressure is mounting slowly to test the 50-period MA near 155.90. However, the RSI remains flat above the 50.0 area, suggesting a consolidating behavior.

Conversely, if bulls find enough strength and bounce above the 20-period MA around 157.00, the pair could test the multi-month swing high around 158.00. However, the path of least resistance lies on the downside.

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