Japanese Yen rises on potential Japan's intervention fears


  • The Japanese Yen rallied on Wednesday amid speculations of another intervention by authorities. 
  • The momentum, however, runs out of steam on the back of the divergent BoJ-Fed policy outlooks.
  • Traders now look to the second-tier US data for some impetus ahead of the NFP report on Friday.

The Japanese Yen (JPY) rises against its American counterpart in the early New York session amid speculations that Japan's financial authorities intervened again, for a second time this week, with intention to prop up the domestic currency provided a strong boost to the JPY. Reuters reported that the BoJ data on Thursday suggested that Japanese officials may have spent 3.26 trillion to 3.66 trillion yen ($21.01 billion to $23.59 billion) on Wednesday to pull the yen back from near 34-year lows. Reuters added the central bank's projection for Tuesday's money market conditions indicated a 4.36 trillion yen net receipt of funds, compared with a 700 billion-1.1 trillion yen estimate from money market brokerages that excludes intervention.

Apart from this, a generally positive risk tone is seen undermining the US Dollar and acting as a headwind for the USD/JPY pair. That said, the prevalent US Dollar (USD) selling, led by receding fears about further interest rate hikes by the Federal Reserve (Fed), keeps a lid on any meaningful appreciating move for the currency pair. Traders now look to the US macro data, including the US Nonfarm Payrolls (NFP) and ISM Services PMI data, which are scheduled for Friday. 

Daily Digest Market Movers: Japanese Yen defies BoJ's uncertain rate outlook and moves higher

  • A likely Japanese Yen buying directed by Japan's Ministry of Finance triggered a steep USD/JPY decline to over a two-week low during the late US session on Wednesday, though the momentum falters near the 153.00 mark.
  • Japan's top currency diplomat Masato Kanda declined to confirm if authorities had stepped into the FX market to support the domestic currency and said that they will disclose intervention data at the end of this month. However,
  • Minutes of the Bank of Japan March policy meeting revealed this Thursday that the central bank must continue to support the economy from a financial standpoint to achieve sustained, domestic demand-driven recovery. 
  • The lack of change in forward guidance by the Federal Reserve on Wednesday, signaling that it is leaning toward reductions in borrowing costs later this year, was perceived as dovish and led to the overnight US Dollar slump. 
  • In the post-meeting press conference, Fed Chair Jerome Powell noted that inflation has eased substantially over the past year but it's still too high and that further progress on inflation is not assured as the path is uncertain. 
  • Fed fund futures traders are now pricing in 35 basis points of easing this year, up from 29 bps before the statement, which is still less than three 25 bps cuts projected by the US central bank and helps revive the USD demand.
  • A positive tone around the US equity markets further contributes to driving flows away from the safe-haven JPY and provides an additional boost to the USD/JPY pair on Thursday ahead of the second-tier US economic releases.
  • The market attention, meanwhile, remains on the US jobs report on Friday, which will now play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the currency pair.

Technical Analysis: USD/JPY bulls remain well-supported above the 50% Fibo. hurdle, around mid-156.00s

From a technical perspective, the overnight bounce from the 200-period Simple Moving Average on the 4-hour chart and the subsequent move beyond the 38.2% Fibonacci retracement level of this week's sharp pullback from a multi-decade high favor bullish traders. That said, mixed oscillators on hourly/daily charts warrant some caution before positioning for any further intraday appreciating move, suggesting that the USD/JPY pair might confront some resistance near the 50% Fibo. level, around the 156.55 region. Some follow-through buying, however, will suggest that the recent corrective slide from the all-time peak has run its course and pave the way for additional gains.

On the flip side, weakness back below the 155.70 area could drag the USD/JPY pair back towards the 155.00 psychological mark en route to the 154.50-154.45 support zone. Failure to defend the latter might expose the Asian session low, around the 153.00 round figure, with some intermediate support near the 154.00 mark and the 153.60 region.

Bank of Japan FAQs

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.

The Bank’s massive stimulus 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 policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.

A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.

 

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