USD/JPY dips below 150.00, on sentiment shift, despite positive US housing data

• USD/JPY falls below the key 150.00 level, trading at 149.76, down 0.64% amidst a shift in market sentiment.
• US housing data shows resilience with Building Permits and Housing Starts exceeding expectations but fails to support USD/JPY.
• Bank of Japan Governor Kazuo Ueda emphasizes the need for patience in monetary policy, linking future policy changes to sustainable inflation targets and a positive wage-inflation cycle.

The USD/JPY dropped below the 150.00 figure during Friday's mid-North American session as market sentiment shifted sour due to derivative instruments expiring linked to stocks. US housing data shows signs of recovery, though it failed to underpin the USD/JPY, which trades at 149.76, falls 0.64%

US housing recovery failed to boost the USD/JPY, as Fed rate cuts bets increase

Wall Street’s rally halted on Friday. Building Permits in the United States (US) beat forecasts of 1.45 million, rose by 1.487 million or a 1.1% jump, compared to September’s data, and benefited from a low inventory as homebuilders offer cheaper rates despite higher mortgage rates. Housing Starts for October rose by 1.9% from 1.35 million to 1.37 million. The data portrays a resilient economy, as data surprised investors following an acceleration of the disinflationary process. At the same time, Industrial Production and Retail Sales suggested the economy is finally feeling the shocks of the Federal Reserve’s tightening.

Meanwhile, the US Dollar Index (DXY), which tracks the buck’s value vs. a basket of peers, drops 0.32% and trades at 104.05, a headwind for the USD/JPY pair. Furthermore, the US 10-year Treasury bond yield has plunged more than 20 basis points in the week and sits at 4.44%, as investors' bets the Fed would cut rates next year increased. The interest rate expectations suggest the US central bank would slash rates by 100 bps toward the year’s end of 2024.

In the meantime, San Francisco Fed President Mary Daly said the Fed is uncertain if inflation is on track to 2%, and it’s too soon to declare victory on inflation. Fed Governor Michael Barr said the Fed is likely at or near the peak needed to be on interest rates.

On the Japanese front, the latest data justified the Bank of Japan's (BoJ) loose stance after GDP contracted in Q3, snapping two-quarters of consecutive growth.

The BoJ Governor Kazuo Ueda said that patience is required in the face of uncertain inflation dynamics. Ueda added, “Trend inflation will gradually accelerate toward our 2% inflation target through fiscal 2025. But this needs to be accompanied by a positive wage-inflation cycle.” Ueda added that the BoJ could potentially end the Yield Curve Control (YCC) and negative interest rates if inflation sustainably hits the 2% target.

USD/JPY Technical Levels