The Japanese Yen remains at a low level amid weak economic data, and the USD/JPY currency pair faces a complex situation.

After Japan’s Q3 GDP data was released, the yen remained relatively weak, still hovering near a nine-month low against the US dollar. This trend is driven by a complex interplay of macroeconomic and technical factors, which investors should monitor closely.

Economic Data Misses Expectations, Central Bank Rate Hike Outlook Dims

Data released by Japan’s Cabinet Office on Monday showed that the country’s economy contracted by 0.4% quarter-on-quarter in Q3 (July to September), marking the first negative growth in six quarters. Meanwhile, year-on-year data for the quarter fell to -1.8%, significantly below the 2.3% growth in the previous quarter. Although some markets had anticipated worse conditions, the contraction itself is enough to shake investor confidence in the Bank of Japan’s recent rate hike prospects.

On the political front, Prime Minister Sanae Takaichi’s government is contemplating a large-scale fiscal stimulus plan aimed at alleviating the impact of rising living costs on ordinary households. Takaichi previously announced plans to set a new fiscal target framework, allowing for more flexible spending policies in the coming years. This political stance further dampens market expectations of the Bank of Japan taking aggressive rate hikes in the short term.

Geopolitical Tensions Rise, Safe-Haven Sentiment Supports Yen

Recent tensions between Japan and China have escalated due to Taiwan issues. Statements from Japanese officials regarding potential armed conflict have elicited stern warnings from China, with both sides issuing warning signals. The rising geopolitical risks have provided some technical support to the yen, a traditional safe-haven currency, somewhat restraining aggressive short positions.

Meanwhile, Japanese authorities are paying increased attention to the foreign exchange market. Finance Minister Satsuki Katayama stated last week that they will closely monitor currency movements, while Economy Minister Kineo Uchi warned that yen depreciation could push up import costs and inflation. These comments suggest possible official intervention, limiting the yen’s further sharp decline.

Fed Policy Shift, US Dollar Slightly Strengthens

In contrast to Japan, the Federal Reserve’s recent policy signals have shown subtle adjustments. An increasing number of Fed officials are expressing cautious remarks amid insufficient economic data, which has dampened expectations of a rate cut in December. The decline in rate cut expectations has supported the US dollar’s relative strength, with USD/JPY stabilizing around 154.00.

However, the dollar’s upward momentum is not unlimited. The potential risk of a prolonged US government shutdown has kept investors cautious about the dollar outlook. Key upcoming catalysts include Thursday’s non-farm payrolls report, the FOMC minutes, and Fed speeches, which will be critical in determining the dollar’s direction.

Technical Outlook: Bulls Prepare to Break 155.00

From a technical perspective, USD/JPY rebounded from the 153.60 support level (corresponding to the 4-hour chart’s 100-period simple moving average) to above the 154.45-154.50 resistance zone on Friday, signaling bullish momentum. The daily oscillators remain in optimistic territory, well away from overbought levels.

If the price can break and hold above the 155.00 psychological level, it would further strengthen the upward trend, with secondary targets around 155.60-155.65, and ultimately aiming for the 156.00 round figure. Conversely, a drop below the immediate support at 154.00 could lead to a test of 153.60-153.50. If this zone is broken, the pair could fall toward the 153.00 level, which should be viewed as a key short-term support and potential reversal point. A breakdown below this level could shift control to the bears, pushing the price further down toward the 152.15-152.10 support zone.

Overall, the future performance of USD/JPY will depend on the confirmation of Fed policy, US economic data releases, and Japan’s stance on yen intervention. Investors should pay close attention to key economic data releases this week.