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Japanese Yen stands tall near multi-week top as traders keenly await US jobs data

  • The Japanese Yen continues to draw support from speculated government intervention.
  • The post-FOMC USD selling turns out to be another factor weighing on the USD/JPY pair.
  • Investors now look forward to the crucial US NFP report for a fresh directional impetus.

The Japanese Yen (JPY) scales higher for the third straight day on Friday – also marking the fourth day of a negative move in the previous five – and stands tall near a three-week high heading into the European session. Speculations that Japan's financial authorities intervened again on Thursday, for the second time this week, with an intention to prop up the domestic currency, continue to lend some support to the JPY. This, along with the post-FOMC US Dollar (USD) selling bias, exerts additional downward pressure on the USD/JPY pair. 

Investors, meanwhile, seem convinced that the gap in interest rate differential between Japan and the United States (US) will remain wide for some time. This, along with a generally positive tone around the equity markets, is seen acting as a headwind for the safe-haven JPY and helping to limit the downside for the USD/JPY pair. Furthermore, traders seem reluctant to place aggressive directional bets and prefer to wait for the release of the closely-watched US monthly jobs data – popularly known as the Nonfarm Payrolls (NFP) report later today. 

Daily Digest Market Movers: Japanese Yen remains on the front foot amid government interventions

  • Bank of Japan data showed on Thursday that Japanese officials may have spent around ¥3.66 trillion on Wednesday to boost the domestic currency, lending support to the Japanese Yen. 
  • Japan's top currency diplomat, Masato Kanda, declined to directly confirm that intervention had occurred and said that the Ministry of Finance will disclose data at the end of this month.
  • The Federal Reserve dismissed the prospects for any further interest rate hikes despite sticky inflation, which continues to weigh on the US Dollar and exerts pressure on the USD/JPY pair. 
  • Meanwhile, Fed Chair Jerome Powell flagged no intention to cut interest rates in the near term, citing the lack of progress in the fight to bring inflation back to the central bank's 2% target. 
  • In contrast, the BoJ has indicated that accommodative financial conditions will be maintained for an extended period, which, in turn, might hold back the JPY bulls from placing aggressive bets.
  • Japan's finance minister, Shunichi Suzuki, and BoJ Governor Kazuo Ueda will hold a press conference on the sidelines of the ADB meeting at 13:45 GMT, which should provide some impetus.
  • Later, during the North American session, the release of the US jobs data, or the Nonfarm Payrolls (NFP) report, will influence the USD and determine the near-term trajectory for the USD/JPY pair.

Technical Analysis: USD/JPY seems vulnerable while below 50% Fibo., slide towareds 152.00 remains on the cards

From a technical perspective, a break below the 50% Fibonacci retracement level of the March-April rally might have already set the stage for deeper losses. The outlook is reinforced by the fact that oscillators on the daily chart have just started gaining negative traction. This, in turn, suggests a subsequent fall toward testing the 152.00 confluence, comprising the 50-day Simple Moving Average (SMA) and the 61.8% Fibo. level, looks like a distinct possibility. The said handle also marks a previous strong resistance breakpoint, but it has now turned support. Hence, a convincing break below will be seen as a fresh trigger for bearish trades and pave the way for an extension of the recent sharp pullback from the all-time peak touched in April.

On the flip side, any recovery back above the 153.00 mark now seems to confront some resistance near the 153.50 area ahead of the Asian session peak, around the 153.75 region. This is followed by the 154.00 round figure, which if cleared decisively, might trigger a short-covering rally. The subsequent move-up should allow the USD/JPY pair to reclaim the 155.00 psychological mark, with some intermediate resistance near the 154.45-154.50 zone.

Japanese Yen FAQs

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, 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 stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

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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