Japanese Yen remains on the defensive against USD, seems vulnerable to slide further

  • The Japanese Yen ticks higher on stronger Tokyo CPI, albeit lacks follow-through.
  • The BoJ policy uncertainty is holding back the JPY bulls from placing fresh bets.
  • Traders also seem reluctant and prefer to wait for the US macro data/event risks.

The Japanese Yen (JPY) remains on the back foot against its American counterpart heading into the European session on Tuesday amid the uncertainty about the Bank of Japan's (BoJ) plans to exit the negative interest rates regime. That said, the stronger Tokyo CPI print released earlier today revived expectations for an imminent shift in the policy stance. This, along with speculations that Japanese authorities will intervene to prop up the domestic currency and the cautious market mood acts as a tailwind for the safe-haven JPY. 

The US Dollar (USD), on the other hand, continues with its struggle to gain any meaningful traction in the wake of growing acceptance that the Federal Reserve (Fed) will start cutting interest rates in June. This further contributes to capping the upside for the US/JPY pair. Traders, however, seem reluctant and prefer to wait for move cues about the Fed's rate-cut path. Hence, the focus remains glued to Fed Chair Jerome Powell's two-day congressional testimony, along with important US macro data scheduled at the start of a new month.

Daily digest market movers: Japanese Yen lacks firm intraday direction amid mixed fundamental cues

  • A rise in Tokyo CPI renews chatter that the Bank of Japan will exit the negative interest rates regime in the coming month and provides a modest lift to the Japanese Yen.
  • The Statistics Bureau reported that consumer inflation in Japan's capital rebounded to the 2.5% YoY rate in February from a 22-month low of 1.6% in the previous month.
  • Meanwhile, a core reading, which excludes both energy and fresh food, fell to 3.1% last month from 3.3% in January, though remained above the BoJ’s 2% annual target.
  • Sticky inflation, along with expectations for another bumper pay hike this year, should allow the BoJ to end its ultra-loose monetary policy settings sooner rather than later.
  • The au Jibun Bank Service PMI for Japan was finalized at 52.9 for February as compared to the preliminary estimate of 52.5 and the 53.1 registered in the previous month.
  • Japan's economy minister, Yoshitaka Shindo, denied a media report over the weekend that Japan is considering calling an end to deflation in the wake of rising prices.
  • The US Dollar bulls remain on the defensive amid firming expectations that the Federal Reserve will eventually start cutting interest rates at the June policy meeting.
  • Atlanta Fed President Raphael Bostic does not anticipate back-to-back rate cuts when they begin and still expects only two 25-basis point rate cuts by the end of this year.
  • Bostic further said that inflation is on track to return to the 2% target, but he needs to see more progress and gain confidence in disinflation before voting to reduce policy rates.
  • Traders now seem reluctant and prefer to wait on the sidelines ahead of this week's important US macro releases, starting with the ISM Services PMI later this Tuesday.
  • The focus, however, remains on Fed Chair Jerome Powell's semi-annual congressional testimony on Wednesday and Thursday, and the US Nonfarm Payrolls (NFP) on Friday.

Technical analysis: USD/JPY bulls have the upper hand while above the 150.00 psychological mark

From a technical perspective, the USD/JPY pair has been oscillating in a familiar range over the past three weeks or so. This constitutes the formation of a rectangle on short-term charts. Against the backdrop of a rally from the December 2023 low, this might still be categorized as a bullish consolidation phase. Moreover, oscillators on the daily chart are holding comfortably in the positive territory and suggest that the path of least resistance for spot prices is to the upside.

That said, it will still be prudent to wait for a sustained breakout through the trading range hurdle, around the 150.75-150.85 region, which coincides with the YTD peak touched in February, before positioning for any further gains. The USD/JPY pair might then surpass the 151.00 mark and accelerate the momentum towards the 151.45 intermediate resistance en route to the 152.00 neighbourhood, or a multi-decade peak set in October 2022 and retested in November 2023.

On the flip side, the 150.00 psychological mark now seems to protect the immediate downside. Any further decline is likely to attract fresh buyers near last week's swing low, around the 149.20 area. This is followed by the 149.00 mark, which if broken might shift the bias in favour of bears. The subsequent could drag the USD/JPY pair to the 148.30 support en route to the 148.00 mark and the 100-day Simple Moving Average (SMA), currently pegged near the 147.80 region.

Japanese Yen price in the last 7 days

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies in the last 7 days. Japanese Yen was the strongest against the New Zealand Dollar.

USD   0.01% 0.05% 0.63% 0.86% -0.03% 1.47% 0.67%
EUR -0.01%   0.03% 0.62% 0.83% -0.04% 1.44% 0.65%
GBP -0.04% -0.03%   0.57% 0.81% -0.09% 1.40% 0.61%
CAD -0.64% -0.63% -0.59%   0.22% -0.68% 0.84% 0.03%
AUD -0.87% -0.86% -0.81% -0.24%   -0.90% 0.60% -0.21%
JPY 0.03% 0.05% 0.08% 0.64% 0.90%   1.49% 0.69%
NZD -1.50% -1.47% -1.46% -0.86% -0.63% -1.53%   -0.78%
CHF -0.66% -0.65% -0.61% -0.03% 0.20% -0.70% 0.80%  

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).

Japanese Yen FAQs

What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

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.

How does broader risk sentiment impact 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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