Japanese Yen bulls remain on the sidelines; subdued USD demand do little to inspire

• The Japanese Yen fails to build on the overnight strength amid the BoJ rate hike uncertainty.
• A positive risk tone also undermines the JPY, though subdued USD demand helps limit losses.
• The fundamental backdrop suggests that the path of least hurdle for the JPY is to the downside.

The Japanese Yen (JPY) struggles to capitalize on the overnight bounce against its American counterpart from its lowest level since early August and remains on the defensive during the Asian session on Friday. A drop in Japan’s real wages for the first time in three months, a decline in household spending and signs that price pressures from raw material costs were subsiding raised doubts about the Bank of Japan’s (BoJ) rate hike plans. This, along with a generally positive risk tone, undermines the safe-haven JPY ahead of Japan’s snap election on October 27.

The negative factor, to a larger extent, is offset by subdued US Dollar (USD) price action, which, in turn, fails to provide any meaningful impetus to the USD/JPY pair. Despite the hotter-than-expected US consumer inflation figures, indications of labor market weakness should allow the Federal Reserve (Fed) to continue cutting interest rates. This keeps the USD bulls on the defensive below a nearly two-month peak set on Thursday and acts as a headwind for the currency pair. Traders now look to the release of the US Producer Price Index (PPI) for a fresh impetus.