Japanese Yen moves higher against USD after BoJ Governor Ueda's comments
|- The Japanese Yen attracts some dip-buying following the post-BoJ downtick earlier this Tuesday.
- The Japanese central bank decided to leave its ultra-loose monetary policy settings unchanged.
- Bets for an eventual policy pivot in March or April underpin the JPY and weigh on USD/JPY.
The Japanese Yen (JPY) weakened a bit against its American counterpart after the Bank of Japan (BoJ) decided to leave its ultra-loose monetary policy settings unchanged on Tuesday. The initial market reaction, however, fades rather quickly as investors seem convinced about the idea that the BoJ will exit the negative interest rates regime in March or April. In fact, the Japanese central bank, in the accompanying policy statement, noted that the likelihood of realizing the price stability target has continued to gradually rise. This reaffirms the idea that the BoJ will eventually exit the negative interest rates regime, which, in turn, lends some support to the JPY.
Apart from this, the risk of a further escalation of geopolitical tensions in the Middle East, along with persistent worries about a slowing economic recovery in China, is seen underpinning the JPY's safe-haven status. The US Dollar (USD), on the other hand, is weighed down by a softer tone surrounding the US Treasury bond yields and exerts some downward pressure on the USD/JPY pair. Investors, meanwhile, have been scaling back their expectations for a more aggressive policy easing by the Federal Reserve (Fed). This should act as a tailwind for the US Treasury bond yields, which should help limit any meaningful downside for the buck and the USD/JPY pair.
Daily Digest Market Movers: Japanese Yen attracts dip-buying amid hopes for an eventual BoJ pivot
- The Japanese Yen reacted negatively to the Bank of Japan's decision to maintain the ultra-easy moneary policy settings this Tuesday, though manages to recover its early lost ground.
- The central bank, in the quarterly outlook report, noted that risks to economic activity is generally balanced and acknowledged the need to monitor whether virtuous cycle between wages and prices will intensify.
- In the accompanying monetary policy statement, the BoJ reiterated that it will continue with QQE with YCC as long as needed, and won't hesitate to take additional easing steps if needed.
- Furthermore, the BoJ said that Japan's economy is likely to continue recovering moderately and the likelihood of achieving sustained 2% inflation continues to gradually heighten.
- Furthermore, BoJ Governor Kazuo Ueda reitereated in the post-meeting press conference that the likelihood of achieving 2% inflation target is gradually rising, lending some support to the JPY.
- The US Dollar ticks lower and further contributes to the offered tone surrounding the USD/JPY pair, through diminishing odds for an early rate cut by the Federal Reserve should limit further losses.
- The current market pricing indicates a 40% chance of a March rate cut, down from as much as 80% a week ago, and a cumulative of five 25 bps rate cuts for 2024 as compared to six two weeks ago.
- The hawkish outlook allows the yield on the benchmark 10-year US government bond to hold steady at around 4.10%, just below the highest level since December touched last week.
- The conflict in the Middle East is showing no signs of easing, with the drone strikes by Iran-backed Houthi rebels continuing on commercial vessels in the Red Sea.
- Pakistan and Iran have decided to resolve their issues with diplomacy, while the Israel-Hamas conflict is threatening to erupt into a large-scale war and impact the global economy.
- Geopolitical tensions, along with persistent worries about slowing economic growth in China, could benefit the safe-haven JPY and cap any meaningful upside for the USD/JPY pair.
Technical Analysis: USD/JPY slide below the 100-day SMA pivotal resistance-turned-support
From a technical perspective, acceptance below the 100-day Simple Moving Average (SMA), around mid-147.00s, might have set the stage for a slide to the 147.00 round figure en route to the next relevant support near the 146.60-146.55 area. Any subsequent fall, however, might still be seen as a buying opportunity and is more likely to find decent support near the 146.10-146.00 horizontal zone. The latter should act as a pivotal point for the USD/JPY pair, which if broken decisively will shift the near-term bias in favour of bearish traders.
On the flip side, the 147.50-147.55 area, or the 100-day SMA, now seems to act as an immediate barrier ahead of the 148.00 mark. The subsequent move up might continue to confront stiff resistance near the 148.80 region, or the multi-week high touched last week. Given that oscillators on the daily chart are holding comfortably in the positive territory, the subsequent move up has the potential to lift the USD/JPY pair beyond the 149.30-149.35 intermedaite barrier, towards the 150.00 psychological mark.
Japanese Yen price this week
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.12% | -0.12% | 0.32% | 0.21% | -0.01% | 0.60% | 0.01% | |
| EUR | -0.12% | -0.24% | 0.20% | 0.09% | -0.13% | 0.48% | -0.10% | |
| GBP | 0.11% | 0.22% | 0.41% | 0.32% | 0.10% | 0.71% | 0.12% | |
| CAD | -0.32% | -0.19% | -0.43% | -0.09% | -0.31% | 0.30% | -0.30% | |
| AUD | -0.23% | -0.09% | -0.33% | 0.09% | -0.24% | 0.40% | -0.19% | |
| JPY | 0.00% | 0.10% | -0.08% | 0.33% | 0.22% | 0.61% | 0.02% | |
| NZD | -0.61% | -0.50% | -0.74% | -0.30% | -0.40% | -0.62% | -0.60% | |
| CHF | -0.01% | 0.10% | -0.14% | 0.29% | 0.21% | -0.03% | 0.58% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Bank of Japan FAQs
What is the Bank of Japan?
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
What has been the Bank of Japan’s policy?
The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.
How do Bank of Japan’s decisions influence the Japanese Yen?
The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.
Is the Bank of Japan’s ultra-loose policy likely to change soon?
A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.
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