Japanese Yen bears turn cautious amid intervention fears, not out of the woods yet

  • The Japanese Yen ticks higher after some jawboning by Japanese authorities.
  • BoJ Governor Kazuo Ueda sounded a bit hawkish and further boosts the JPY.
  • The Fed's outlook on rates underpins the USD and lends support to USD/JPY.

The Japanese Yen (JPY) recovers a bit after hitting a fresh weekly low against its American counterpart earlier this Thursday and remains on the front foot heading into the European session. Verbal intervention by Japanese authorities, along with comments by the Bank of Japan (BoJ) Governor Kazuo Ueda, turns out to be key factors lending some support to the JPY. That said, a recession in Japan might have already dashed hopes for an imminent shift in the BoJ's policy stance in the coming months. This, along with a generally positive tone around the equity markets, should keep a lid on any meaningful appreciating move for the safe-haven JPY. 

The US Dollar (USD), on the other hand, continues with its struggle to attract any meaningful buying and further contributes to the USD/JPY pair's intraday pullback of around 25 pips from the vicinity of mid-150.00s. Meanwhile, firming expectations that the Federal Reserve (Fed) will keep interest rates higher for longer, bolstered by hawkish FOMC meeting minutes released on Wednesday, remains supportive of elevated US Treasury bond yields. This favours the USD bulls and suggests that the path of least resistance for the currency pair is to the upside. 

Daily Digest Market Movers: Japanese Yen attracts buyers amid intervention fears, lacks follow-through

  • Japan's Finance Minister Shunichi Suzuki reiterated on Thursday that the government is closely watching FX moves with a high sense of urgency and lends some support to the Japanese Yen. 
  • Bank of Japan (BoJ) Governor Kazuo Ueda said that service prices continue to rise moderately. Expect a positive cycle to strengthen in which a tight labor market leads to higher wages and household income.
  • A recession in Japan fuelled uncertainty about the likely timing of when the BoJ will exit the negative interest rates policy and  keeps a lid on any meaningful upside for the domestic currency. 
  • A private business survey released this Thursday showed that factory activity in Japan shrank for the ninth consecutive month in February due to a sharp reduction in new orders.
  • The au Jibun Bank flash Japan Manufacturing PMI declined to 47.2 in February from 48.0 previous and the gauge for the services sector fell from 53.1 to 52.5 for the current month.
  • The Composite PMI, which combines both manufacturing and services sectors, came in at 50.3 in February, down from the 51.5  previous and suggesting that the overall business activity stagnated.
  • The report added that the slight improvement seen in January evaporated in February and that firms were the least upbeat since January 2023, reflecting reduced optimism with regard to future output.
  • The Japanese Cabinet Office said in its report on Wednesday that the government downgraded its view on the economy in February, marking the first downgrade since November 2023.
  • The US Dollar struggles to attract any meaningful buyers despite the fact that the January FOMC meeting minutes revealed that officials were concerned about the risks of cutting rates too soon.
  • Policymakers agreed that they needed greater confidence in falling inflation before considering cutting rates, reinforcing bets that the Federal Reserve would keep rates higher for longer.
  • Traders now expect that the Fed will begin cutting rates in June, which, along with a weaker 20-year bond auction, pushed the US Treasury bond yields higher across the board on Wednesday.
  • The yield on the benchmark 10-year US government bond advanced to its highest level since November 30, which favours the USD bulls and lends additional support to the currency pair.

Technical Analysis: USD/JPY remains confined in a familiar trading range, bullish potential seems intact

From a technical perspective, the range-bound price action witnessed over the past week or so constitutes the formation of a rectangle on short-term charts. Against the backdrop of the recent breakout through the 148.70-148.80 horizontal barrier, this might still be categorized as a bullish consolidation phase. Moreover, oscillators on the daily chart are holding in the positive territory and are still away from the overbought zone, validating the constructive outlook for the USD/JPY pair. It, however, will still be prudent to wait for some follow-through buying beyond the 150.85-150.90 region, or a multi-month top set last week, before positioning for any further gains. Spot prices might then climb to the 151.45 intermediate hurdle 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 ahead of the weekly trough, around the 149.70-149.65 region. Any further weakness could attract some buyers near the 149.25-149.20 area. This is followed by the 149.00 round figure and the 148.80-148.70 resistance-turned-support, which if broken decisively will suggest that the USD/JPY pair has formed a near-term top and set the stage for some meaningful corrective decline. The subsequent downfall has the potential to drag spot prices to the 148.35-148.30 region en route to the 148.00 mark and the 100-day Simple Moving Average (SMA) support near the 147.70 zone.

Japanese Yen price this week

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the Canadian Dollar.

USD   -0.41% -0.23% 0.07% -0.24% 0.16% -0.87% -0.22%
EUR 0.40%   0.18% 0.47% 0.16% 0.56% -0.47% 0.18%
GBP 0.23% -0.18%   0.29% -0.01% 0.39% -0.64% 0.01%
CAD -0.07% -0.46% -0.28%   -0.31% 0.09% -0.95% -0.29%
AUD 0.24% -0.17% 0.01% 0.31%   0.40% -0.64% 0.02%
JPY -0.16% -0.55% -0.34% -0.09% -0.40%   -1.04% -0.39%
NZD 0.87% 0.47% 0.64% 0.94% 0.63% 1.02%   0.65%
CHF 0.22% -0.18% -0.01% 0.29% -0.02% 0.38% -0.66%  

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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