Japanese Yen weakens after dismal Household Spending data; hawkish BoJ limits losses

Japan's currency, the yen, experienced a decline on Tuesday due to disappointing household spending data. The Internal Affairs Ministry reported a 6.8% year-over-year decrease in September, marking the 10th consecutive monthly decline and the steepest drop since September 2020. This poor performance dampened the Bank of Japan's (BoJ) plans for additional interest rate hikes.

Meanwhile, a slight surge in the US Dollar (USD) provided some support to the USD/JPY pair. US President Donald Trump announced a positive outlook for ending the conflict in Iran, reducing the chances of further strikes. However, Iran's Secretary of the Supreme National Security Council, Mohsen Rezaei, disputed reports of ongoing negotiations, insisting that Washington must meet Tehran's seven conditions for a resolution. This uncertainty continued to favor the safe-haven USD.

The CME Group's FedWatch Tool suggested that traders were still pricing in an 80% chance of another US Federal Reserve (Fed) rate increase in December. This further bolstered the USD as investors anticipated upcoming US consumer inflation data, which would provide more insight into the Fed's policy direction.

Despite these factors, hawkish BoJ expectations and intervention risks could hinder the yen's recovery, potentially capping gains for the USD/JPY pair. To confirm a stronger rebound, prices must surpass the mid-158.00 range. Conversely, a drop below the 157.50 level would support further declines.

The USD/JPY pair remained under the 100-day Simple Moving Average (SMA) at 159.02, indicating vulnerability to selling pressure and a still-corrective phase for the market. On the upside, the 100-day SMA acted as the primary resistance, and overcoming it could help dissipate the current bearish sentiment and pave the way for a more sustained recovery.