Japanese Yen bulls remain on the sidelines amid bets for BoJ inaction on Tuesday
- The Japanese Yen trims a part of its modest intraday gains amid dovish BoJ expectations.
- Geopolitical risks and China's economic woes limit further losses for the safe-haven JPY.
- Reduced bets for a March Fed rate cut favour the USD bulls and lend support to USD/JPY.
The Japanese Yen (JPY) struggles to capitalize on its modest intraday gains against the US Dollar (USD) on Monday and remains well within the striking distance of its lowest level since November 28 touched last week. Investors seem convinced that the Bank of Japan (BoJ) will show little desire towards ending negative interest rates or tweaking the Yield Curve Control (YCC) policy at the end of a two-day meeting on Tuesday. This, along with a generally positive tone around the equity markets, undermines the safe-haven JPY.
Apart from this, diminishing odds for an early interest rate cut by the Federal Reserve (Fed) act as a tailwind for the US Dollar (USD) and assist the USD/JPY pair to attract some dip-buying near the 147.75-147.70 area. Furthermore, persistent worries about slowing economic growth in China and the risk of a further escalation of geopolitical tensions in the Middle East might keep a lid on any optimistic move in the markets. This, in turn, should help limit any meaningful downside for the JPY ahead of the highly-anticipated BoJ decision.
Daily Digest Market Movers: Japanese Yen struggles to attract any meaningful buyers ahead of BoJ decision
- The Japanese Yen fails to build on its modest intraday gains amid expectations that the Bank of Japan will not pivot away from its ultra-dovish monetary policy stance on Tuesday.
- The bets were reaffirmed by Friday's data showing that the headline Consumer Price Index (CPI) in Japan and the core gauge dropped to the lowest level since June 2022 and July 2022, respectively.
- Adding to this, the New Year's Day earthquake in Japan and weak domestic wage growth data ensure that the BoJ is unlikely to exit the decade-long accommodative regime anytime soon.
- The University of Michigan's preliminary survey report showed that Friday's US Consumer Sentiment Index rose from 69.7 in December to 78.8 this month, hitting the highest level since July 2021.
- According to CME Group's FedWatch Tool, traders now see May as the likely month for a Fed rate cut announcement, with chances for a move at the March monetary policy meeting falling to 50%.
- Meanwhile, consumers' inflation expectations over the next 12 months were the lowest in three years, reaffirming the view that the US central bank will start cutting rates in the first half of this year.
- Apart from this, the risk of a further escalation of geopolitical tensions in the Middle East and China's economic woes, which tend to benefit the safe-haven JPY, exerts some pressure on the USD/JPY pair.
- The US launched an attack on a Houthi anti-ship missile on Sunday, its seventh round of strikes since the Iran-backed rebel group began targeting merchant vessels in the Red Sea.
- There have been at least 140 attacks on U.S. bases since October 17 and seven in the past week, including the heavy military strikes on Ain al-Assad base in Iraq, which injured US and Iraqi soldiers.
- Iran has vowed retaliation for a strike that killed five senior military officials in Damascus yesterday, an attack it blamed on Israel, which has neither confirmed nor denied involvement.
- Israeli forces and Hamas fighters clashed in several places on Sunday, while Israeli planes resumed heavy bombing on Khan Younis in the southern Gaza Strip.
- Israeli Prime Minister Benjamin Netanyahu appeared to rule out the two-state solution to the conflict and said that Israel must retain security control over all the territory west of Jordan.
Technical Analysis: USD/JPY bulls have the upper hand above mid-147.00s, or 100-day SMA resistance breakpoint
From a technical perspective, any subsequent downfall is more likely to find decent support near the 100-day Simple Moving Average (SMA), currently pegged near mid-147.00s. The said area could act as a pivotal point, which if broken decisively might prompt aggressive technical selling and drag the USD/JPY pair towards the 147.00 mark en route to the next relevant support near the 146.60-146.55 area.
On the flip side, the 148.00 round figure, followed by the 148.15-20 region now seems to act as an immediate hurdle ahead of the multi-week high, around the 148.80 zone touched on Friday. Some follow-through buying, leading to a subsequent strength beyond the 149.00 mark, will be seen as a fresh trigger for bullish traders. The USD/JPY pair might then aim to conquer the 150.00 psychological mark with some intermediate hurdle near the 149.70-149.75 area.
Japanese Yen price today
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.09% | -0.09% | -0.05% | -0.08% | -0.17% | -0.16% | -0.08% | |
| EUR | 0.09% | 0.00% | 0.05% | 0.00% | -0.08% | -0.07% | 0.01% | |
| GBP | 0.09% | 0.00% | 0.04% | -0.02% | -0.09% | -0.05% | 0.00% | |
| CAD | 0.05% | -0.03% | -0.04% | -0.03% | -0.12% | -0.10% | -0.04% | |
| AUD | 0.10% | 0.02% | 0.02% | 0.07% | -0.06% | -0.03% | 0.03% | |
| JPY | 0.20% | 0.09% | 0.13% | 0.12% | 0.09% | 0.04% | 0.10% | |
| NZD | 0.14% | 0.03% | 0.05% | 0.09% | 0.05% | -0.03% | 0.05% | |
| CHF | 0.08% | -0.02% | 0.00% | 0.03% | -0.03% | -0.11% | -0.07% |
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.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
