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Japanese Yen edges lower against USD amid BoJ uncertainty; focus shifts to Tokyo CPI on Tuesday

  • The Japanese Yen ticks lower in the wake of the BoJ policy uncertainty and the risk-on mood.
  • Friday’s disappointing US data keeps the USD bulls on the defensive and might cap USD/JPY.
  • Traders look to the Tokyo CPI report on Tuesday ahead of this week’s key US economic data.

The Japanese Yen (JPY) meets with a fresh supply following Friday's modest pullback from the vicinity of the YTD low and remains on the back foot against its American counterpart heading into the European session. The Bank of Japan (BoJ) Governor Kazuo Ueda reiterated on Friday that it was too early to declare victory on inflation. Apart from this, a technical recession in Japan suggests that the BoJ could delay its plan to tighten the monetary policy, which, in turn, is undermining the JPY. 

That said, reports that the Japanese government has begun considering declaring an official end to deflation. Moreover, market participants seem convinced that another bumper pay hike in Japan could trigger the wage-price spiral and force the BoJ to pivot away from its ultra-loose monetary policy settings. This, along with a softer tone around the equity markets, should help limit losses for the JPY and keep a lid on any meaningful appreciating move for the USD/JPY pair amid subdued US Dollar (USD) demand. 

Traders also seem reluctant to place aggressive directional bets and prefer to wait for the release of the Tokyo CPI report on Tuesday. Investors this week will also confront Fed Chair Jerome Powell's congressional testimony on Wednesday and Thursday and important US macro data scheduled at the start of a new month, including the closely-watched US monthly jobs data, or the Nonfarm Payrolls (NFP) report on Friday. This could offer fresh cues about the Fed's rate-cut path and in turn, influence the USD/JPY pair. 

Daily digest market movers: Japanese Yen remains depressed against USD amid divergent BoJ-Fed policy expectations

  • Mixed signals from Bank of Japan policy makers last week, along with the underlying bullish sentiment around the equity markets, continue to act as a headwind for the safe-haven Japanese Yen.
  • BoJ board member Hajime Takata said last week that the central bank must consider overhauling its ultra-loose monetary policy as the achievement of the 2% inflation target is becoming in sight.
  • BoJ Governor Kazuo Ueda, however, said it was too early to conclude that inflation was close to sustainably meeting the 2% target and stressed the need to scrutinize more data on the wage outlook.
  • Furthermore, a recession in Japan, along with a slightly warmer domestic consumer inflation, adds to the uncertainty about the BoJ's future policy decisions and keeps the JPY traders on the sidelines.
  • Media reports, citing sources, suggest that the Japanese government has begun considering declaring an official end to deflation two decades after it acknowledged that prices were falling moderately
  • The US Dollar is undermined by Friday's disappointing ISM Manufacturing PMI, which contracted more than anticipated and came in at 47.8 for February as compared to 49.1 in the previous month.
  • Other details of the report showed that the Employment Index declined to 45.9 from 47.1, the New Orders Index retreated to 49.2 from 52.5 and the Prices Paid Index edged lower to 52.5 from 52.9.
  • Adding to this, the University of Michigan’s Consumer Sentiment Index also fell short of estimates and dipped to 76.9 in February, though inflation expectations were in line with the expectations.
  • Fed Governor Adriana Kugler noted that progress on disinflation will continue, while Richmond Fed President Thomas Barkin said that overall inflation is likely to come down over the next few months.
  • Chicago Federal Reserve President Austan Goolsbee said that the policy rate is quite restrictive, and Dallas Fed President Lorie Logan said that it will be appropriate to slow the pace of the balance sheet shrinking.
  • The US Treasury bond yields declined on Friday after Fed Governor Christopher Waller’s comments, saying that he would like the central bank to boost its share of short-term Treasuries.
  • Investors now look forward to the release of the Tokyo CPI report on Tuesday for a fresh impetus, ahead of the month start key US macro data, including the crucial Nonfarm Payrolls on Friday.

Technical analysis: USD/JPY remains below the 150.80-150.90 pivotal hurdle, or the YTD peak touched in February

From a technical perspective, Friday's failure ahead of the 150.80-150.90 pivotal resistance and the lack of any meaningful buying warrants some caution for bullish traders. The subsequent pullback, however, showed some resilience below the 150.00 mark. Moreover, oscillators on the daily chart are holding in the positive territory and support prospects for some meaningful upside for the USD/JPY pair. That said, it will still be prudent to wait for a sustained strength beyond the aforementioned barrier before placing fresh bullish bets. Spot prices might then climb to 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, any meaningful downfall is likely to find decent support and attract fresh buyers near last week's swing low, around the 149.20 area. Some follow-through selling, leading to a break below the 149.00 mark, might shift the bias in favour of bearish traders and make the USD/JPY pair vulnerable. Spot prices might then decline to the 148.30 support en route to the 148.00 round figure and the 100-day Simple Moving Average (SMA), currently pegged near the 147.80 region.

Japanese Yen price today

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

 USDEURGBPCADAUDJPYNZDCHF
USD 0.02%0.00%0.07%0.07%0.01%0.10%0.02%
EUR-0.02% -0.01%0.05%0.07%0.00%0.10%0.00%
GBP0.00%0.01% 0.06%0.08%0.03%0.11%0.02%
CAD-0.06%-0.03%-0.05% 0.02%-0.05%0.04%-0.04%
AUD-0.07%-0.07%-0.08%-0.02% -0.06%0.03%-0.06%
JPY-0.02%-0.01%-0.06%0.03%0.03% 0.07%-0.01%
NZD-0.10%-0.10%-0.11%-0.05%-0.03%-0.09% -0.10%
CHF-0.02%0.00%-0.02%0.05%0.07%0.00%0.10% 

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).

Economic Indicator

Japan Tokyo Consumer Price Index (YoY)

The Tokyo Consumer Price Index (CPI), released by the Statistics Bureau of Japan on a monthly basis, measures the price fluctuation of goods and services purchased by households in the Tokyo region. The index is widely considered as a leading indicator of Japan’s overall CPI as it is published weeks before the nationwide reading. The YoY reading compares prices in the reference month to the same month a year earlier. Generally, a high reading is seen as bullish for the Japanese Yen (JPY), while a low reading is seen as bearish.

Read more.

Next release: 03/04/2024 23:30:00 GMT

Frequency: Monthly

Source: Statistics Bureau of Japan

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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