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Japanese Yen struggles near multi-decade low ahead of US GDP; looks to BoJ on Friday

  • The Japanese Yen continues losing ground amid the divergent BoJ-Fed policy expectations.
  • The recent intervention warnings by Japanese authorities do little to provide any respite.
  • Traders now look to the US Q1 GDP report for some impetus ahead of the BoJ on Friday.

The Japanese Yen (JPY) continues losing ground against its American counterpart and drops to a fresh multi-decade low, around the 155.70-155.75 region heading into the European session on Thursday. The Bank of Japan (BoJ) has indicated that it is in no rush in terms of policy normalization, while the Federal Reserve (Fed) is expected to delay cutting interest rates in the wake of still sticky inflation. This, in turn, suggests that the wide interest-rate differential between Japan and the United States (US) will remain for some time, which, in turn, is seen as a key factor driving flows away from the JPY. 

Meanwhile, the overnight slump below the 155.00 psychological mark raises the risk of an imminent intervention by Japanese authorities to stem any further JPY weakness, albeit does little to ease the bearish pressure. That said, the emergence of some US Dollar (USD) selling keeps a lid on any further appreciating move for the USD/JPY pair ahead of Thursday's release of the Advance US Q1 GDP report. The focus, however, will remain glued to the crucial BoJ decision on Friday and the US Personal Consumption Expenditures (PCE) Price Index, which should provide a fresh directional impetus to the pair. 

Daily Digest Market Movers: Japanese Yen bears seem unaffected by weaker USD, intervention warnings

  • Expectations that the difference in interest rates between the US and Japan will stay wide drag the Japanese Yen to a fresh multi-decade low on Thursday, fueling speculation about possible intervention by Japanese authorities.
  • Japanese officials have repeatedly warned that they will take necessary action to address excessive moves in the yen if needed and have emphasized a focus on the pace of the currency’s depreciation rather than a precise price level. 
  • Moreover, Bank of Japan Governor Kazuo Ueda has said the central bank may hike rates again if the fall in the domestic currency significantly pushes up inflation, which might hold back the JPY bears from placing fresh bets.
  • Japan's Liberal Democratic Party (LDP) executive, Takao Ochi, said on Wednesday that the JPY's fall towards the 160 against its American counterpart may be deemed excessive and could prompt policymakers to consider some action. 
  • Japan's Finance Minister Shunichi Suzuki refrained from commenting on specific FX levels, while Chief Cabinet Secretary Yoshimasa Hayashi reiterated that it is important for currencies to move in a stable manner reflecting fundamentals.
  • 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 Census Bureau reported on Wednesday that Durable Goods Orders increased by 2.6% in March as compared to the previous month's downwardly revised 0.7% rise, while new orders excluding transportation rose 0.2%
  • This comes on the back of strong US consumer inflation figures and reaffirmed expectations that the Federal Reserve will not begin its rate-cutting cycle before September, which acts as a tailwind for the US Dollar and the USD/JPY pair. 
  • Traders now look forward to the release of the Advance US GDP report, which is expected to show that growth in the world's largest economy slowed to a 2.5% annualized pace during the first quarter of 2024 from the 3.4% previous. 
  • Apart from this, the US Personal Consumption Expenditures (PCE) Price Index on Friday will be looked upon for cues about the Fed's rate-cut path and determining the next leg of a directional move for the buck and the currency pair. 

Technical Analysis: USD/JPY moves closer to 156.00 mark, overbought RSI warrants caution for bullish traders

From a technical perspective, the overnight breakout through a short-term trading range and a subsequent strength beyond the 155.00 mark could be seen as a fresh trigger for bullish traders. That said, the Relative Strength Index (RSI) on the daily chart remains in the overbought territory, warranting some caution amid intervention fears and ahead of the BoJ event risk. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for the next leg of a positive move. Nevertheless, the USD/JPY pair seems poised to prolong its recent well-established uptrend from the March swing low and aim to conquer the 156.00 round figure.

On the flip side, any meaningful corrective slide is likely to attract fresh buyers and remain limited near the 154.90-154.85 region. This is followed by the 154.55-154.45 support zone, which, if broken, might prompt some technical selling and drag the USD/JPY pair to the 154.00 round-figure mark. The downward trajectory could extend further towards last Friday's low, around the 153.60-153.55 area.

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: 0.1%

Previous: 0%

Source: Bank of Japan

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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Japanese Yen struggles near multi-decade low ahead of US GDP; looks to BoJ on Friday