Japanese Yen stays muted as rising oil prices push up import costs

• High crude oil prices put pressure on Japan's energy-importing economy, leaving the Japanese Yen struggling amid uncertainty over Israel's election.
• With markets pricing in a December rate rise, the Bank of Japan is expected to leave interest rates unchanged this Friday.
• A steady Federal Reserve target rate of 3.75%-4.0% is expected today, as investors look for guidance on December.

Rising crude oil prices are renewing cost pressures on major energy-importing economies, weighing on the Japanese Yen (JPY). Against that backdrop, USD/JPY extends its advance for a fourth consecutive day, trading near 158.00 in Wednesday's Asian session.

As global financial markets followed the unfolding Israeli election results, oil prices advanced. The outcome could alter the direction of the Middle East conflict. Exit polls indicate a close contest, with Prime Minister Benjamin Netanyahu level with opposition leader Gadi Eisenkot and neither bloc securing a clear majority while votes are still being counted. Although the result remains deadlocked, early figures suggest support is weakening for Netanyahu, a dominant figure in Israeli politics who has led the country through nearly three years of conflict.

After raising rates by a cumulative 50 basis points earlier in the year, the Bank of Japan (BoJ) is widely expected to leave them unchanged at Friday's policy meeting. Policymakers are pausing to gauge the effects of the tightening already delivered. Nevertheless, market participants still expect a further increase before year-end, with pricing pointing strongly towards a December rise.

An unchanged benchmark rate is also the expected outcome of Wednesday's Federal Reserve (Fed) decision, leaving the target range at 3.75% to 4.0%. The CME FedWatch Tool puts the market-implied probability of a hold at the October meeting at 92.8%. With markets also assigning an 84.4% probability to a December rate rise, investors will scrutinise comments from Fed Chair Kevin Warsh for clues to the policy path ahead.

Technical Analysis: USD/JPY Maintains a Bullish Bias

Trading at 158.00 on the daily chart, USD/JPY retains a positive bias above both its short- and medium-term Exponential Moving Averages (EMAs). Just beneath the market, the 50-period EMA stands at 157.96 and the nine-period EMA at 157.76, indicating underlying buying interest on dips. Meanwhile, a 14-day Relative Strength Index (RSI) reading of around 52 places momentum in neutral-to-positive territory, rather than signalling overbought conditions.

Should the pair retreat, the 50-period EMA around 157.96 provides immediate support, while the nine-period EMA at 157.76 adds to the nearby demand zone. A more pronounced decline would encounter structural support much further away, around the broader FXS Fed Sentiment Index base at 127.51. Given its distance from current spot prices, that level primarily serves as a longer-term macroeconomic reference.

(The technical analysis of this story was written with the help of an AI tool. Find out more.)