Japanese Yen lacks firm near-term direction, looks to FOMC minutes for fresh impetus

The Japanese Yen (JPY) remains confined in a familiar range against its American counterpart heading into the European session on Wednesday and is influenced by a combination of diverging forces. A recession in Japan fuelled uncertainty about the likely timing of when the Bank of Japan (BoJ) will exit the negative interest rates policy, which, in turn, is seen as a key factor undermining the JPY. That said, the recent verbal intervention by Japanese authorities, along with a generally softer risk tone around the equity markets, lend some support to the safe-haven JPY. 

The US Dollar (USD), on the other hand, remains on the defensive near its lowest level in almost three week as traders look for more cues about the Federal Reserve's (Fed) rate-cut path before placing directional bets. Hence, the focus remains glued to the release of the FOMC meeting mintues, which will play a key role in influencing the USD pruice dynamics and provide a fresh directional impetus to the USD/JPY pair. In the meantime, elevated US Treasury bond yields might continue to act as a tailwind for the Greenback and help limit the downside for the currency pair. 

Daily Digest Market Movers: Japanese Yen extends the range play amid mixed fundamental cues

• Fears that Japanese authorities will intervene in the markets to stem any further weakness in the domestic currency and a softer risk tone lend some support to the safe-haven Japanese Yen.
• Japan's Finance Minister Shunichi Suzuki reiterated on Tuesday that the government is watching FX moves with a high sense of urgency and that the exchange rate was set by a number of factors.
• Adding to this, Japan's Finance Ministry official Atsushi Mimura said that the government can sell assets such as savings and foreign bonds in FX reserves when it is necessary to intervene.
• Mimura added that Japan is always communicating and coordinating with other countries in case of FX intervention and is mindful of maintaining safety and securing liquidity in FX reserves management.
• Data released this Wednesday showed that Japanese exports grew more than expected in January, though a bigger-than-estimated fall in imports pointed to sluggish domestic demand and a weak economy.
• Exports grew 11.9% year-on-year in January, or the highest since November 2022, as compared to a 9.5% fall anticipated, while imports shrank 9.6%, resulting in a lower-than-forecast deficit of ¥1.758 trillion.
• According to the Reuters Tankan poll, Japanese manufacturers’ business confidence fell in February, from the previous month’s reading of 6 to -1, marking the first negative reading since last April.
• This comes on top of a technical recession in Japan, which could derail the Bank of Japan's plan to exit its ultra-easy policy this year and is holding back the JPY bulls from placing aggressive bets.
• The US Dollar struggles near its lowest level in over two weeks amid bets that the Federal Reserve will start cutting interest rates in the coming months and caps the upside for the USD/JPY pair.
• Traders now look to the release of the FOMC meeting minutes for cues about the Fed's rate-cut path, which will drive the USD demand and provide some meaningful impetus to the currency pair.

Technical Analysis: USD/JPY consolidates in a range around the 150.00 mark  before the next leg up

From a technical perspective, the recent range-bound price action warrants some caution before positioning for a firm near-term direction. That said, the recent breakout through the 148.70-148.80 horizontal barrier favours bullish traders. Moreover, oscillators on the daily chart are holding in the positive territory and are still away from the overbought zone, validating the constructive outlook for the USD/JPY pair. It, however, will still be prudent to wait for some follow-through buying beyond the mid-150.00s and the 150.85-150.90 region, or a multi-month top set last week, before positioning for any further gains. Spot prices might then climb to the 151.45 intermediate hurdle en route to the 152.00 neighbourhood, or a multi-decade peak set in October 2022 and retested in November 2023.

On the flip side, weakness below the mid-149.00s could attract some buyers near the 149.25-149.20 area. This is followed by the 149.00 round figure and the 148.80-148.70 resistance-turned-support, which should act as a key pivotal point. A convincing break below the latter will suggest that the USD/JPY pair has formed a near-term top and set the stage for some meaningful corrective decline. The subsequent downfall has the potential to drag spot prices to the 148.35-148.30 region en route to the 148.00 mark and the 100-day Simple Moving Average (SMA) support near the 147.70 zone.