Yen extended its rebound today, with momentum picking up across the board during European session. While the immediate driver is not fully clear, technical and fundamental factors are aligning to suggest the potential for a more sustainable turnaround, especially against European majors.
On the technical side, EUR/JPY should have formed a short-term top at 175.03 after rejection at 175.41 key resistance. Deeper retreat toward 55 Day EMA (now at 172.21), is favored in the near term. Sustained break below would imply a correction of the entire five-wave rally from 154.77, opening the way to 38.2% retracement of 154.77 to 175.03 at 167.29.
In CHF/JPY, bearish divergence on D MACD is clearer, with a short-term top likely at 187.55. Deeper pullback toward the 55 Day EMA (now at 184.03) is in play. Sustained break there will suggest that it’s already correcting whole five-wave rise from 165.83, and bring deeper correction to 38.2% retracement of 165.83 to 187.55 at 179.25.
Fundamentally, several catalysts could lend Yen more support. In the near term, the most immediate risk is the looming US government shutdown. Unless lawmakers agree to a temporary funding deal, government funding will expire at midnight Tuesday, adding uncertainty to risk sentiment.
Also in focus is Friday’s US non-farm payrolls report, assuming it is released on time. The data will be pivotal for shaping Fed expectations, Treasury yields, and risk appetite more broadly — all of which are crucial drivers for Yen.
Looking beyond the US, speculation is building that the BoJ may deliver another rate hike before year-end. The Summary of Opinions from the September meeting showed growing support among policymakers for further tightening. Tomorrow’s Tankan Survey will provide fresh insight into how businesses are coping with US tariffs and the recently signed US-Japan trade deal. A resilient reading would strengthen the hawkish case.
Markets generally expect no move at the October 30 meeting. But with the BoJ’s history of confounding market expectations, investors should not rule out the possibility of action. After all, the event also comes with updated economic projections, which could be used to justify a move. In the meantime, traders will be watching for shifts in tone from BoJ officials in the run-up to the meeting. Even subtle changes in guidance could be enough to tilt the balance.
