Japanese Yen remains on the defensive, bears turn cautious amid intervention fears


  • The Japanese Yen meets with a fresh supply in the wake of the BoJ’s dovish outlook.
  • Fed Governor Waller’s hawkish comments underpin the USD, supporting USD/JPY.
  • Thursday’s US macro data is eyed for some impetus ahead of the PCE data on Friday.

The Japanese Yen (JPY) remains depressed against its American counterpart heading into the European session on Thursday and languishes near the lowest level since 1990 touched the previous day, though the downside seems cushioned. Japanese authorities continued their jawboning to support the domestic currency, which, along with a generally softer risk tone, helps limit losses for the safe-haven JPY. Apart from this, a modest US Dollar (USD) pullback from the vicinity of the monthly peak keeps a lid on the USD/JPY pair. 

Any meaningful appreciating move for the JPY, however, seems elusive in the wake of the Bank of Japan's (BoJ) cautious approach and uncertain outlook for future rate hikes. Furthermore, the overnight hawkish remarks by Federal Reserve (Fed) Governor Christopher Waller could lend support to the Greenback and the USD/JPY pair. Traders also seem reluctant ahead of the release of the US Personal Consumption Expenditures (PCE) Price Index on Friday, which should provide cues about the Fed's rate-cut path. 

In the meantime, Thursday's US economic docket – featuring the final Q4 GDP print, the usual Weekly Initial Jobless Claims, Pending Home Sales and the revised Michigan Consumer Sentiment Index – might provide some impetus. Apart from this, the broader risk sentiment should contribute to producing short-term trading opportunities. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the USD/JPY pair is to the upside and supports prospects for further intraday gains. 

Daily Digest Market Movers: Japanese Yen remains vulneable in amid the BoJ's dovish outlook

  • Japan's top currency diplomat Masato Kanda said on Wednesday that he won't rule out any steps to respond to disorderly FX moves and provided a modest lift to the Japanese Yen. 
  • Japan's top monetary officials met to discuss the rapidly weakening currency and suggested that they were ready to intervene to stop disorderly and speculative moves in the currency.
  • S&P affirms Japan's 'A+/A-1' rating and expects the impact from the Bank of Japan's (BoJ) change in monetary policy to be limited, albeit does little to impress the JPY bulls.
  • Meanwhile, the BoJ last week struck a dovish tone and indicated that accommodative financial conditions will be maintained for an extended period, which is seen undermining the JPY. 
  • The view was echoed by BoJ Board Member Tamura Naoki, adding that the bank will guide monetary policy appropriately in accordance with the economic, price, and financial developments.
  • The overnight hawkish comments by Federal Reserve Governor Christopher Waller cooled rate cut hopes, lifting the US Dollar closer to the monthly top and lending support to the USD/JPY pair. 
  • Waller said that hotter-than-expected inflation readings in recent months and the current resilience in the US economy give the Fed substantial headroom to keep rates higher for longer.
  • Traders, however, seem reluctant to place aggressive directional bets and prefer to wait for the release of the US Personal Consumption Expenditures (PCE) Price Index on Friday.
  • The crucial inflation data will play a key role in influencing expectations about the Fed's rate cut path, which, in turn, will drive the USD and provide a fresh impetus to the currency pair.
  • In the meantime, Thursday's US economic docket – featuring the final Q4 GDP print, Weekly Initial Jobless Claims and Pending Home Sales – might produce short-term opportunities.

Technical Analysis: USD/JPY consolidates in a familiar trading band before the next leg up

From a technical perspective, any subsequent move up might continue to confront stiff resistance and remain capped near the 152.00 mark. The said handle should act as a key pivotal point, which, if cleared decisively, will be seen as a fresh trigger for bullish traders. Given that oscillators on the daily chart are holding in the positive territory, the USD/JPY pair may prolong its well-established uptrend witnessed since January 2023 and climb further towards the 153.00 round figure.

On the flip side, the overnight swing low, around the 151.00 mark, now seems to protect the immediate downside. Any further decline is more likely to attract fresh buyers and remain limited near the 150.25 support zone. This is closely followed by the 150.00 psychological mark, which, if broken decisively, could make the USD/JPY pair vulnerable to accelerate the corrective decline further towards the 149.35-149.30 region en route to the 149.00 round figure.

 

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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