Japanese Yen struggles to lure buyers amid divergent BoJ-Fed policy expectations

• The Japanese Yen draws some support from the possibility of a government intervention.
• The divergent BoJ-Fed expectations and easing Middle East tensions cap the safe-haven JPY.
• Traders also seem reluctant ahead of the key US macro data and BoJ meeting later this week.

The Japanese Yen (JPY) struggles to capitalize on a modest intraday uptick against its American counterpart and hangs near a multi-decade low heading into the European session on Tuesday. The Bank of Japan (BoJ) indicated that it is in no rush in terms of policy normalization, while the Federal Reserve (Fed) is expected to keep interest rates higher for longer amid sticky inflation. This, in turn, suggests that the large gap in interest rates between the US and Japan will stay for some time, which, along with a generally positive risk tone, fails to assist the safe-haven JPY to attract any meaningful buyers. 

The US Dollar (USD), on the other hand, remains well within the striking distance of its highest level since November touched last week and continues to draw support from hawkish Fed expectations. This further acts as a tailwind for the USD/JPY pair, though speculations that Japanese authorities will intervene to prop up the domestic currency might cap the upside. Traders also seem reluctant ahead of the crucial BoJ decision on Friday. This, along with the Advance US Q1 GDP print and the US Personal Consumption Expenditures (PCE) Price Index, will determine the near-term trajectory for the pair. 

Daily Digest Market Movers: Japanese Yen seems vulnerable amid dovish BoJ expectations, despite intervention warnings

• Japan's Finance Minister Shunichi Suzuki, along with other policymakers, said that they are watching currency moves closely and will respond as needed, providing some respite to the Japanese Yen.
• Senior Japan ruling party official, Satsuki Katayama said that authorities could intervene to prop up JPY at any time as the recent fall has been excessive and out of line with fundamentals.
• The flash PMIs released from Japan on Tuesday showed that overall business activity improved substantially at the beginning of the second quarter, albeit did little to impress the JPY bulls.
• The au Jibun Bank Japan Manufacturing PMI moved closer to breaking back into expansionary territory and improved from 48.2 to 49.9 in April – marking the strongest reading since June 2023.
• The gauge for the services sector came in at 54.6 for the reported month as compared to 54.1 in March, suggesting that demand remained strong despite weakness in other aspects of the economy.
• Following last month’s historic decision to end the negative rate policy and Yield Curve Control (YCC) program, the Bank of Japan is expected to keep its short-term interest target unchanged on Friday.
• Moreover, the BoJ is anticipated to adopt a data-dependent approach in deciding the next interest rate hike amid uncertainties on whether wage hikes will broaden and drive up consumer prices.
• The latest data published by the Bank of Japan showed on Tuesday that Japan's Weighted Median Inflation Index, a key measure of the country’s trend inflation, rose at its slowest pace in 11 months to 1.3% in March.
• Investors pushed back their expectations about the timing of the first rate cut by the Federal Reserve to September and downsized the number of rate cuts this year to less than two amid sticky inflation.
• Adding to this, the recent hawkish remarks by FOMC members allow the US Dollar to stand tall near its highest level since November touched last week and act as a tailwind for the USD/JPY pair.
• Traders now look to the flash US PMIs for some impetus, though the focus remains on the Advance US Q1 GDP on Thursday and the Personal Consumption Expenditures (PCE) Price Index on Friday.

Technical Analysis: USD/JPY might extend its consolidative price move below 155.00, bulls not ready to give up yet

From a technical perspective, the Relative Strength Index (RSI) is still flashing overbought conditions on the daily chart and holding back the USD/JPY pair from placing fresh bets. Any further slide, however, is more likely to attract some dip-buyers near the 154.35-154.30 region. This should help limit the downside for spot prices near the 154.00 mark, which, if broken, might expose last Friday's swing low, around the 153.60-153.55 zone. The next relevant support is pegged near the 153.25-153.20 area and the 153.00 mark. A convincing break below the latter could prompt aggressive technical selling and drag the pair to the 152.50 intermediate support en route to a short-term trading range resistance breakpoint near the 152.00 round figure.

On the flip side, the multi-decade high, around the 154.85 region touched on Monday, followed by the 155.00 psychological mark, could act as an immediate hurdle. A sustained strength beyond the latter will be seen as a fresh trigger for bullish traders and set the stage for an extension of a well-established appreciating trend from the March monthly swing low.