Japanese Yen refreshes multi-decade low against USD, around 155.00 pivotal level

  • The Japanese Yen remains on the backfoot amid BoJ's cautious approach towards further tightening.
  • A positive risk tone further undermines the JPY, though intervention fears could limit further losses.
  • Traders might also prefer to wait for the crucial BoJ policy decision and the key US macro releases.

The Japanese Yen (JPY) drops to a fresh multi-decade low against its American counterpart heading into the European session on Tuesday, with bears now awaiting a move beyond the 155.00 psychological mark before placing fresh bets. Market participants seem convinced that the gap between interest rates in the US and Japan will remain wide for some time. Apart from this, the upbeat market mood, bolstered by easing geopolitical tensions in the Middle East, is seen undermining the safe-haven JPY. 

The US Dollar (USD), on the other hand, attracts some buyers and recovers a part of the precious day's dismal US PMIs-inspired slide to over a one-week low, which, lends additional support to the USD/JPY pair. It, however, remains to be seen if the JPY bears can maintain their dominant position amid speculations that Japanese authorities will intervene in the markets to prop up the domestic currency and ahead of the crucial BoJ decision on Friday. Apart from this, the key US macro data – the Advance Q1 GDP report and the Personal Consumption Expenditures (PCE) Price Index – will provide a fresh directional impetus to the currency pair. 

Daily Digest Market Movers: Japanese Yen bulls fail to gain any respite from intervention warnings

  • The Bank of Japan's cautious approach, indicating that accommodative financial conditions will be maintained for an extended period, fails to assist the Japanese Yen in registering any meaningful recovery from a multi-decade low.
  • Hopes that the Iran-Israel conflict will not escalate further, ease geopolitical tensions in the Middle East, and remain supportive of a generally positive risk tone, which turns out to be another factor undermining the safe-haven JPY. 
  • The JPY bulls shrugged off a survey by the Finance Ministry, showing that about 70% of companies in Japan will raise pay scale in the fiscal year 2024 and that about 40% of firms were struggling with labor shortages even after raising wages. 
  • The recent verbal warnings from Japanese officials that they would intervene in the markets to stem any further weakness in the domestic currency hold back bearish traders from placing fresh bets and help limit deeper losses.
  • Investors keenly await the outcome of the highly-anticipated two-day BoJ policy meeting on Friday for cues on when the central bank will raise interest rates again, which, in turn, will determine the near-term trajectory for the JPY.
  • The US Dollar is pressured by weaker US PMI figures for April, released on Tuesday, indicating that the economic upturn lost momentum at the start of the second quarter and contributed to keeping a lid on the USD/JPY pair. 
  • The S&P Global Composite Purchasing Managers Index (PMI) fell to 50.9 in April's flash estimate, suggesting that the business activity in the US private sector continued to expand, albeit at a softer pace than in the previous month. 
  • Meanwhile, the S&P Global Manufacturing PMI dropped to 49.9 from 51.9 in April, highlighting a contraction in business activity, while the gauge for the services sector declined to 50.9 from March's final reading of 51.7.
  • Investors, however, seem convinced that the Federal Reserve is unlikely to begin its rate-cutting cycle in June and have also scaled back their expectations about the total number of rate cuts in 2024 to less than two.
  • Traders now look to Wednesday's release of the US Durable Goods Orders, though the focus remains on the Advance Q1 GDP and the Personal Consumption Expenditures (PCE) Price Index on Thursday and Friday, respectively.

Technical Analysis: USD/JPY bulls retain control, look to build on momentum beyond 155.00 psychological mark

From a technical perspective, the range-bound price action witnessed over the past week or so could be categorized as a bullish consolidation phase against the backdrop of the recent blowout rally from the March swing low. However, the Relative Strength Index (RSI) on the daily chart is flashing overbought conditions and warrants some caution. 

This, in turn, suggests that the USD/JPY pair is more likely to extend its consolidative price move or witness a modest pullback before the next leg up. That said, any meaningful corrective slide is likely to find decent support near the 154.55-154.45 region ahead of the 154.00 mark. The latter should act as a key pivotal point, which, if broken, could drag spot prices back towards last Friday's low, around the 153.60-153.55 area. 

On the flip side, the multi-decade high, just ahead of the 155 psychological mark, might continue to offer some resistance to the USD/JPY pair. 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 nearly two-month-old upward trajectory.

Economic Indicator

BoJ Interest Rate Decision

The Bank of Japan (BoJ) announces its interest rate decision after each of the Bank’s eight scheduled annual meetings. Generally, if the BoJ is hawkish about the inflationary outlook of the economy and raises interest rates it is bullish for the Japanese Yen (JPY). Likewise, if the BoJ has a dovish view on the Japanese economy and keeps interest rates unchanged, or cuts them, it is usually bearish for JPY.

Read more.

Next release: Fri Apr 26, 2024 03:00

Frequency: Irregular

Consensus: 0%

Previous: 0%

Source: Bank of Japan


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