Japanese Yen sticks to modest intraday gains against USD, upside potential seems limited
- The Japanese Yen edges higher following the release of Japanese consumer inflation data.
- The uncertainty over the BoJ’s future policy steps keeps a lid on any meaningful upside.
- A modest US Dollar strength might contribute to limiting losses for the USD/JPY pair.
The Japanese Yen (JPY) stages a modest recovery after touching a fresh YTD low on Friday and remains on the front foot against its American counterpart heading into the European session. Data released earlier today showed that consumer inflation in Japan remains above the Bank of Japan's (BoJ) 2% target. Moreover, most Japanese firms have agreed to the trade unions' wage rise demands, which is expected to push up inflation in the coming months. This, in turn, supports prospects for further policy tightening by the BoJ and lends some support to the JPY.
The BoJ, however, indicated earlier this week that financial conditions will remain accommodative and fell short of offering any guidance about the pace of policy normalization. This raises uncertainty about the central bank's future policy steps, which, along with the underlying bullish tone across the global financial markets, keeps a lid on any meaningful appreciating move for the safe-haven JPY. Apart from this, some follow-through US Dollar (USD) buying should help limit the downside for the USD/JPY pair and warrants some caution for aggressive bearish traders.
Daily Digest Market Movers: Japanese Yen bulls remain on sidelines despite a rise in domestic consumer inflation
- Japan Consumer Price Index rose from the 2.2% YoY rate to 2.8% in February and remains well above the Bank of Japan's 2% target, lending some support to the Japanese Yen on the last day of the week.
- The Core CPI, which excludes volatile fresh food prices, picked up sharply from the 2% annualized pace seen in January and rose to 2.8% during the reported month, broadly in line with market expectations.
- Meanwhile, the so-called “core core” index that strips away both fresh food and energy prices eased further from the 40-year high touched in 2023 and came in at 3.2% in February as compared to the 3.5% previous.
- This comes on top of a much-stronger-than-expected pay hike by major Japanese firms, which is expected to fuel demand-driven inflation and should allow the BoJ to tighten its monetary policy further.
- Japan's Finance Minister Shunichi Suzuki reiterated that the government is watching FX moves with a high sense of urgency and it is important for currency exchange rates to move in a stable manner that reflects fundamentals.
- BoJ Governor Kazuo Ueda said on Friday that the central bank’s Japanese government bond (JGB) holdings will remain at current levels for the time being, which should cap any further gains for the JPY.
- Despite the Federal Reserve's projected three rate cuts this year, elevated US Treasury bond yields helped the US Dollar to regain positive traction on Thursday and should lend support to the USD/JPY pair.
- The US Department of Labor (DOL) reported that there were 210K Initial Jobless Claims during the week ending March 16 as compared to the previous week's print of 212K and better than the 215K expected.
- Market participants now look forward to Fed Chair Jerome Powell's scheduled speech later during the early North American session for some meaningful impetus and short-term trading opportunities.
Technical Analysis: USD/JPY corrective pullback could be seen as a buying opportunity and remain limited
From a technical perspective, the overnight strong intraday rise stalled near the 151.75 zone, just ahead of the YTD peak set on Wednesday. This is followed by the multi-decade high, around the 152.00 mark touched in November 2022, which if cleared decisively, will be seen as a fresh trigger for bullish traders. The USD/JPY pair might then build on its longer-term uptrend witnessed since January 2023.
On the flip side, any meaningful corrective decline now seems to find decent support near the 151.00 mark, below which spot prices could slide back to the 150.25 region. Some follow-through selling, leading to a subsequent break through the 150.00 psychological mark, might expose the next relevant support near the 149.35-149.30 region. The USD/JPY pair could eventually drop to the 149.00 round-figure mark.
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.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
