Japanese Yen surrenders major part of intraday gains; USD/JPY climbs back to 151.00

The Japanese Yen (JPY) surrenders a major part of its intraday gains heading into the European session on Thursday and remains well within the striking distance of the YTD low touched against its American counterpart the previous day. The Bank of Japan (BoJ) indicated earlier this week that financial conditions would remain accommodative and fell short of offering any guidance about future policy steps, or the pace of policy normalization. This, along with the prevalent risk-on environment, prompts fresh selling around the safe-haven JPY. 

The US Dollar (USD), on the other hand, languishes near a one-week low in the wake of the Federal Reserve's (Fed) forecast of three interest rate cuts by the end of this year. That said, a modest uptick in the US Treasury bond yields lends some support to the USD and assists the USD/JPY pair to rebound around 70-75 pips from the daily low, near the 150.25 region. Meanwhile, speculations that Japanese authorities to stem any further JPY weakness might hold back traders from placing aggressive directional bets and cap the upside for the currency pair. 

Daily Digest Market Movers: Japanese Yen meets with a fresh supply despite bets for more BoJ rate hikes

• A Bank of Japan source told the Nikkei newspaper that an early rate hike leaves room to consider rolling out another increase before the end of the year, which, in turn, boosts the Japanese Yen.
• The monthly Reuters Tankan survey showed that confidence at big Japanese companies rebounded to a three-month high in March and the service-sector mood rose to a seven-month high.
• The headline manufacturers' sentiment index jumped to 10 in March from -1 the previous month, while service-sector sentiment rose to 32 during the reported month from 26 in February.
• Other data released this Thursday showed that Japan's exports grew more than expected, by the 7.8% YoY rate in February, leading to a fall in the trade deficit to ¥379.4 billion from ¥1.7 trillion.
• The flash au Jibun Bank Japan Manufacturing PMI rose to 48.2 in March from 47.2 in February, suggesting that the pace of deterioration in the factory activity was the softest in four months.
• Adding to this, the au Jibun Bank flash services PMI rose to 54.9 in March, the highest since last May, from 52.9 in February, indicating that service providers maintained a brisk pace of expansion.
• Japan's Finance Minister Shunichi Suzuki said that it is important for currencies to move in a stable manner and that he is closely watching foreign exchange moves with a high sense of urgency.
• This comes a day after the BoJ's historic move to raise the short-term interest rates for the first time since 2007 and ditch years of unconventional easing in a shift towards normalising monetary policy.
• BoJ Governor Kazuo Ueda said that the central bank will support the economy and prices by maintaining accommodative monetary conditions and medium, long-term inflation expectations are heading toward 2%.
• Ueda added that negative rate and other tools under BoJ's massive stimulus had boosted demand by pushing down real interest rates, but had side-effects too such as on JGB market function.
• The Federal Reserve signalled that it remains on track for three interest rate cuts this year, easing market jitters that the central bank will lower its projection for the number of interest rate cuts in 2024 to two.
• In the post-meeting press conference, Fed Chair Jerome Powell said that the recent high inflation readings had not changed the underlying story of easing price pressures, though kept officials on a cautious footing.
• The US Dollar extends the previous day's post-FOMC pullback from a two-week high and drifts lower for the second straight day, which is seen as another factor exerting downward pressure on the USD/JPY pair.
• The prevalent risk-on mood undermines the safe-haven JPY and helps the currency pair to rebound around 70-75 pips from the daily low, though intervention fears should keep a lid on any meaningful upside

Technical Analysis: USD/JPY remains below YTD peak set on Wednesday,  150.00 holds the key for bulls

From a technical perspective, the sharp intraday decline drags spot prices below the 150.80 strong resistance breakpoint turned support, and the 23.6% Fibonacci retracement level of the recent rally witnessed over the past week or so. This might have set the stage for a further intraday depreciating move towards the 150.00 psychological mark, representing the 100-hour Simple Moving Average (SMA). This is closely followed by the 38.2% Fibo. level, around the 149.75 region, which, if broken decisively, could accelerate the fall further towards the 149.25-149.15 region, or the 50% Fibo. level.

On the flip side, the 150.90-151.00 zone now seems to act as an immediate strong barrier, above which the USD/JPY pair could make a fresh attempt to challenge the multi-decade high, around the 152.00 mark touched in November 2023. Some follow-through buying will be seen as a fresh trigger for bullish traders and pave the way for an extension of the longer-term uptrend witnessed since January 2023.