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Japanese Yen adds to post-BoJ losses, approaches multi-decade low ahead of Fed

  • The Japanese Yen dives to a multi-month low in reaction to the BoJ’s dovish hike on Tuesday.
  • Hawkish Fed expectations underpin the USD and lend additional support to the USD/JPY pair.
  • Intervention fears might cap the major ahead of the crucial FOMC monetary policy decision.

The Japanese Yen (JPY) remains under heavy selling pressure for the seventh successive day on Wednesday and drops to a fresh four-month low against its American counterpart heading into the European session. The fact that the Bank of Japan (BoJ) indicated that financial conditions would remain accommodative and fell short of offering any guidance about future policy steps, or the pace of policy normalization, continues to weigh on the JPY. Apart from this, the prevalent risk-on environment turns out to be another factor denting the JPY's relative safe-haven status. 

The US Dollar (USD), on the other hand, stands tall near a two-week high touched on Tuesday amid growing acceptance that the Federal Reserve (Fed) will stick to its higher-for-longer interest rates narrative to bring down inflation. This provides an additional boost to the USD/JPY pair and contributes to the ongoing positive move beyond the mid-151.00s. Meanwhile, the sharp JPY depreciation could lead to some intervention by the Japanese authorities and cap gains for the currency pair as traders keenly await the outcome of the highly-anticipated FOMC policy meeting.

Daily Digest Market Movers: Japanese Yen bears seem unstoppable amid the divergent BoJ-Fed policy outlook

  • The lack of forward guidance for further tightening disappointed hawkish Bank of Japan traders and continues to weigh heavily on the Japanese Yen, dragging it to the lowest level since November 2023 on Wednesday.
  • The BoJ, in a historic move on Tuesday, decided to end its negative interest rate policy and announced its first rate increase since 2007, though pledged to keep monetary conditions accommodative for the time being.
  • The BoJ indicated that it will reduce purchases of commercial paper and corporate bonds, though will continue to purchase Japanese government bonds, and step in when necessary, if yields run too high and too fast.
  • The robust US consumer and consumer inflation figures fuelled speculations that the Federal Reserve could modify its forward guidance to two 25 basis points rate cuts in 2024 instead of the three projected previously.
  • Hence, the focus will remain glued to the outcome of the highly-anticipated two-day FOMC meeting and the updated economic projections, including the so-called "dot plot" for fresh cues about the future rate-cut path.
  • In the meantime, hawkish Fed expectations remain supportive of elevated US Treasury bond yields and favour the USD bulls, though intervention fears could limit losses for the JPY and cap the upside for the currency pair.

Technical Analysis: USD/JPY could prolong the appreciating move towards challenging a multi-decade high

From a technical perspective, the recent solid bounce from the vicinity of the very important 200-day Simple Moving Average (SMA) and a subsequent move beyond the 151.00 mark could be seen as a fresh trigger for bullish traders. Adding to this, oscillators on the daily chart have been gaining positive traction and are still far from being in the overbought territory, validating the near-term constructive setup for the USD/JPY pair. Hence, some follow-through strength back towards the 152.00 neighbourhood, or a multi-decade peak touched in October 2022, looks like a distinct possibility.

On the flip side, any corrective decline now seems to attract fresh buyers and is more likely to remain limited near the 150.80 strong horizontal resistance breakpoint. A sustained break below, however, might prompt some technical selling and drag the USD/JPY pair back towards the 150.00 psychological mark. The next relevant support is pegged near the 149.50 area, which, if broken decisively, might shift the bias in favour of bearish traders and pave the way for deeper losses.

Economic Indicator

United States Fed Monetary Policy Statement

Following the Federal Reserve's (Fed) rate decision, the Federal Open Market Committee (FOMC) releases its statement regarding monetary policy. The statement may influence the volatility of the US Dollar (USD) and determine a short-term positive or negative trend. A hawkish view is considered bullish for USD, whereas a dovish view is considered negative or bearish.

Read more.

Next release: 03/20/2024 18:00:00 GMT

Frequency: Irregular

Source: Federal Reserve

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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