Japanese Yen consolidates near multi-decade low against USD, not out of the woods yet


  • The Japanese Yen continues to be undermined by the BoJ’s cautious stance and the risk-on mood.
  • Intervention fears limit further JPY losses and cap the USD/JPY pair amid a modest USD weakness.
  • The US PCE Price Index keeps a June rate cut by the Fed on the table and undermines the Greenback.

The Japanese Yen (JPY) extends its sideways consolidative price move heading into the European session on Monday and remains confined in a familiar range held against its American counterpart over the past two weeks or so.  The Bank of Japan's (BoJ) cautious approach and the uncertain outlook for future rate hikes, along with the risk-on mood, continue to undermine the safe-haven JPY. That said, signs of a potential government intervention to address any excessive falls in the domestic currency might hold back the JPY bears from positioning for any meaningful depreciating move. 

Meanwhile, the US Dollar (USD), so far, has been struggling to gain any meaningful traction amid bets that the Federal Reserve (Fed) will begin its rate-cutting cycle in June, bolstered by the US Personal Consumption Expenditures (PCE) Price Index on Friday. This might further contribute to keeping a lid on any meaningful appreciating move for the USD/JPY pair. Traders now look to the release of important US macro data scheduled at the beginning of a new month, starting with the ISM Manufacturing PMI on Monday for some impetus ahead of the Nonfarm Payrolls (NFP) on Friday.

Daily Digest Market Movers: Japanese Yen continues to be undermined by the BoJ's dovish outlook

  • The Bank of Japan struck a dovish tone at the end of the March meeting and stopped short of offering any guidance about future policy steps or the pace of policy normalization, which, in turn, is seen weighing on the Japanese Yen.
  • An official survey showed that China's manufacturing activity expanded for the first time in six months in March, providing an additional boost to investors' confidence and contributing to the offered tone surrounding the safe-haven JPY.
  • The National Bureau of Statistics reported on Sunday that China's Manufacturing PMI rose to 50.8 from 49.1 in February, while the gauge for the services sector climbed to 53, suggesting that the world’s second-largest economy is stabilizing.
  • The BoJ's Tankan survey revealed on Monday that business optimism among large manufacturers eased to 11 during the first quarter from 12 in the last survey, while the index for large nonmanufacturers rose to 34 from the 30 previous.
  • The au Jibun Bank Japan Manufacturing PMI contracted for the 10th consecutive month and was finalized at 48.2 in March, marking the highest level since November and indicating that the worst of the weakness had passed.
  • Japan's Finance Minister Shunichi Suzuki said on Monday there were speculative moves behind the recent JPY fall, suggesting that authorities remained ready to intervene in the market to address any excessive falls in the domestic currency.
  • Japanese monetary authorities reportedly made a last-minute decision to bring forward an emergency meeting to Wednesday, which was originally scheduled for Thursday, to maximise the impact of arresting sharp JPY decline.
  • The US Bureau of Economic Analysis reported on Friday that the Personal Consumption Expenditures (PCE) Price Index rose 0.3% in February, slightly lower than the 0.4% estimated, while the yearly rate edged up to 2.5% from the 2.4%.
  • The core PCE Price Index, which excludes volatile food and energy prices, rose 2.8% on a yearly basis as compared to January's upwardly revised reading of 2.9%, keeping a June interest rate cut from the Federal Reserve on the table.
  • This, in turn, drags the US Dollar away from its highest level since February 16 touched last week and might further hold back traders from positioning for any meaningful near-term appreciating move for the USD/JPY pair.
  • Traders now look forward to important US macro data scheduled for release at the start of a new month, starting with the ISM Manufacturing PMI on Monday for some impetus ahead of the key monthly jobs report on Friday.

Technical Analysis: USD/JPY consolidates before the next leg up, back towards testing multi-decade top

From a technical perspective, the range-bound price action witnessed over the past two weeks or so might still be categorized as a bullish consolidation phase against the backdrop of the recent rally from the March swing low. Moreover, oscillators on the daily chart are holding comfortably in the positive territory and have also eased from overbought conditions, suggesting that the path of least resistance for the USD/JPY pair is to the upside. That said, it will still be prudent to wait for a move beyond a multi-decade high, around the 152.00 mark set last week, before positioning for any further gains.

On the flip side, the 151.00 round figure now seems to have emerged as an immediate strong support. Some follow-through selling below the 150.85-150.80 horizontal resistance breakpoint could expose the next relevant support near the 150.25 area. This is closely followed by the 150.00 psychological mark, which, if broken decisively, might turn the USD/JPY pair vulnerable to accelerate the corrective decline further towards the 149.35-149.30 region en route to the 149.00 mark.

 

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.

 

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