Japanese Yen struggles to capitalize on its intraday gains against USD; US PPI in focus
- The Japanese Yen is seen extending the overnight recovery against the USD from a one-month low.
- Escalating Middle East tensions benefit the safe-haven JPY, though dovish BoJ hopes might cap gains.
- Reduced bets for a more aggressive Fed easing could lend support to the buck and the USD/JPY pair.
The Japanese Yen (JPY) strenghtnes for the second straight day against its American counterpart on Friday and recovers further from a one-month low, albeit lacks follow-through. Expectations that a devastating New Year's Day earthquake in Japan, falling rates of inflation in Tokyo and weak wage growth data could delay the Bank of Japan's (BoJ) plan to pivot away from its ultra-dovish stance cap gains for the JPY. That said, geopolitical risks, along with China's economic woes, continue to underpin the JPY's relative safe-haven status.
Apart from this, subdued US Dollar (USD) price action turns out to be another factor exerting some downward pressure on the USD/JPY pair. Despite slightly hot US consumer inflation figures and hawkish comments by Federal Reserve (Fed) officials, the markets are still pricing in a greater chance of a rate cut at the March FOMC policy meeting. This, in turn, is seen weighing on the Greenback, though reduced bets for more aggressive policy easing by the Fed lend some support to the US Treasury bond yields and should help limit any meaningful downside.
The aforementioned mixed fundamental backdrop makes it prudent to wait for strong follow-through selling before placing fresh bearish bets and confirming that the USD/JPY pair's recent recovery from a multi-month low has run out of steam. Market participants now look forward to the release of the US Producer Price Index (PPI), which along with Minneapolis Fed President Neel Kashkari's speech, might influence the USD and provide a fresh impetus. Nevertheless, the currency pair remains on track to end in the green for the second consecutive week.
Daily Digest Market Movers: Japanese Yen sticks to gains against USD amid Middle East tensions
- The Bank of Japan is expected to stick to the ultra-loose monetary policy setting at its meeting on January 22-23, which continues to undermine the Japanese Yen.
- The US consumer inflation figures released on Thursday raise doubts that the Federal Reserve will cut rates in March and lend some support to the USD/JPY pair.
- The Labor Department reported on Thursday that the headline US CPI climbed 0.3% and accelerated from 3.1% to 3.4% over the 12 months through December.
- Excluding the volatile food and energy prices, the core gauge rose by 0.3% last month and advanced 3.9% YoY in December, registering its smallest gain since May 2021.
- Cleveland Fed President Loretta Mester commented on the latest CPI figures and said that that it would likely be too soon for the US central bank to cut its interest rates at the March policy meeting.
- Adding to this, Richmond Fed chief Tom Barkin noted that the central bank needs to be convinced that inflation is headed to target and will be open to lowering rates once inflation is on track to 2%.
- Seperately, Chicago Fed Austan Goolsbee said that the central bank is still on a comfortable path forward on inflation and will have to evaluate policy restrictiveness as inflation continues to decline.
- Expectations for an imminent shift in the Fed's policy stance drags the US Treasury bond yields lower and might hold back the USD bulls from placing aggressive bets.
- According to CNN, the US and UK forces carried out attacks against multiple Houthi targets in reaction to repeated drone and missile attacks on ships in the Red Sea.
- Traders now look to the US Producer Price Index (PPI), which, along with Minneapolis Fed President Neel Kashkari's speech, should provide a fresh impetus.
- The headline PPI is anticipated to rise by 1.3% YoY in December from 0.9% previous, while the core PPI is seen ticking down to 1.9% from 2.0% in November.
Technical Analysis: USD/JPY bears await sustained break below 50% Fibo. before placing fresh bets
From a technical perspective, the USD/JPY pair is placed around the 145.00 psychological mark and flirting with the 50% Fibonacci retracement level of this week's move-up. A sustained break and acceptance below the said handle will set the stage for an extension of the overnight corrective pullback from a one-month peak. Given that oscillators on the 1-hour chart are holding in the negative territory, some follow-through selling below the 100-hour Simple Moving Average (SMA), currently around the 144.80 region, will be seen as a fresh trigger for intraday bearish traders. Spot prices might then accelerate the downfall towards the 61.8% Fibo. level, around the 144.55 area, before dropping to the next relevant support near the 144.10-144.00 region.
On the flip side, the 145.55-145.60 horizontal zone might act as an immediate hurdle ahead of the 146.00 round figure. A sustained strength beyond the latter has the potential to lift the USD/JPY pair further towards the monthly peak, around the 146.40 area touched on Thursday. The momentum could extend further and allow bulls to aim to reclaim the 147.00 mark and then challenge the 100-day SMA, currently pegged near the 147.45 region.
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 Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.00% | -0.01% | -0.05% | -0.15% | 0.02% | -0.11% | 0.06% | |
| EUR | 0.00% | -0.02% | -0.05% | -0.19% | 0.00% | -0.15% | 0.07% | |
| GBP | 0.03% | 0.03% | -0.03% | -0.14% | 0.02% | -0.10% | 0.10% | |
| CAD | 0.05% | 0.04% | 0.03% | -0.16% | 0.06% | -0.06% | 0.11% | |
| AUD | 0.19% | 0.18% | 0.17% | 0.14% | 0.19% | 0.05% | 0.26% | |
| JPY | -0.01% | 0.00% | -0.02% | -0.08% | -0.17% | -0.15% | 0.06% | |
| NZD | 0.13% | 0.15% | 0.14% | 0.09% | -0.01% | 0.17% | 0.22% | |
| CHF | -0.05% | -0.05% | -0.06% | -0.11% | -0.21% | -0.05% | -0.16% |
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).
Risk sentiment FAQs
What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
What are the key assets to track to understand risk sentiment dynamics?
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
Which currencies strengthen when sentiment is "risk-on"?
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
Which currencies strengthen when sentiment is "risk-off"?
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
