Forex market outlook: the Japanese Yen (JPY) buying remains uninterrupted on Wednesday, which, along with a modest US Dollar (USD) weakness, drags the USD/JPY pair below the 152.00 mark.
Amid ongoing geopolitical risks from the prolonged Russia-Ukraine conflict, concerns about US President-elect Donald Trump's tariff proposals are significant factors driving investment towards the safe-haven JPY.
Additionally, expectations that Trump's nominee for US Treasury Secretary, Scott Bessent, will work to limit budget deficits continue to put downward pressure on US Treasury bond yields. This dynamic keeps USD bulls on the defensive near weekly lows and provides further support for the lower-yielding JPY. However, uncertainty regarding the Bank of Japan's (BoJ) plans for interest rate hikes could present a challenge for the JPY ahead of Wednesday's key US macroeconomic releases.
Concerns that US President-elect Donald Trump's tariffs could spark trade wars and negatively affect the global economy continue to drive safe-haven flows toward the Japanese Yen. Scott Bessent's nomination as US Treasury Secretary has provided some relief to bond investors, pushing the benchmark 10-year US Treasury yield down to a two-week low on Monday.
Data released on Tuesday indicated rising inflation in Japan's service sector, keeping the possibility of another rate hike by the Bank of Japan open for its December policy meeting. Japanese Prime Minister Shigeru Ishiba stated on Tuesday that he would urge companies to implement significant wage increases during the annual "Shuntō" negotiations next spring.
The minutes from the November FOMC meeting suggested that the Committee might pause its rate cuts and maintain a restrictive policy if inflation remains high. Officials expressed confidence that inflation is easing and that a strong labor market could allow the Federal Reserve to gradually reduce rates.
According to the CME Group's FedWatch Tool, traders are currently pricing in a 63% likelihood that the Fed will lower borrowing costs by 25 basis points in December. The US Dollar struggles to gain traction, lingering near the weekly lows reached on Tuesday, which adds pressure to the USD/JPY pair.
In geopolitical developments, the Lebanon-based Hezbollah militant group reported launching drones toward Israel on Tuesday night, prompting Israeli airstrikes on Beirut's southern suburbs. Shortly thereafter, US President Joe Biden announced a ceasefire agreement between Lebanon and Israel, effective from 02:00 GMT this Wednesday.
Traders are now anticipating the first revision of the US Q3 GDP and the US Personal Consumption Expenditure (PCE) Price Index for further market direction. Attention will then shift to a series of Japanese macroeconomic data, including Tokyo's Core CPI report, set to be released during the Asian session on Friday.
From a technical standpoint, the overnight close below the 100-period Simple Moving Average (SMA) on the 4-hour chart, coupled with the subsequent decline, favors bearish traders. Additionally, oscillators on the daily chart have begun to show negative momentum, supporting the outlook for further depreciation in the USD/JPY pair. As a result, a continuation of weakness toward the critical 200-day SMA, currently around the 152.00 level, appears likely. A decisive break below this level could expose the monthly swing low in the 151.30-151.25 range.
Conversely, the 153.00 round figure may now serve as an immediate resistance point, followed by the 153.25-153.30 area. If the price maintains strength above these levels, it could trigger a short-covering rally, allowing the USD/JPY pair to reclaim the 154.00 mark. This upward movement could extend further towards the 154.60 intermediate resistance, with the next significant hurdles at the psychological level of 155.00 and near the 155.35-155.40 area.
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Asia stock market: The Asian stock market has recently witnessed notable movements, particularly with the Hang Seng Index experiencing a significant jump and BABA stock seeing a remarkable surge in its stock price.
Key economic releases are due in the first week of September 2025. On Monday, 1 September at 01:45 GMT, the Caixin Manufacturing PMI for August is expected at 50, up from 49.5 in July.
Stock Market Today: The stock market has seen a remarkable upward trend recently, with the S&P 500 reaching all-time highs and the Hang Seng Index (HSI) experiencing a significant increase.
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