Japanese Yen climbs to fresh daily peak against USD, dovish BoJ might cap gains

The Japanese Yen ticks higher and snaps a three-day losing streak against the US Dollar.
The downside remains cushioned in the wake of the BoJ's dovish monetary poilcy stance.
A modest USD uptick could also lend support to USD/JPY ahead of the US macro data.

The Japanese Yen (JPY) gains some positive traction on Wednesday and recovers a part of its recent heavy losses registered over the past three days against the US Dollar (USD). The JPY sticks to its intraday gains through the early European session, with the USD/JPY pair touching a fresh daily trough, around the 143.30 region in the last hour. The JPY bulls, however, might refrain from placing aggressive bets in the wake of the Bank of Japan's (BoJ) decision to stick to its ultra-loose monetary policy settings on Tuesday. The central bank also made no changes to its dovish policy guidance and disappointed some investors hoping for a language to signal a near-term shift away from negative interest rates.

Furthermore, data released this Wednesday showed that both imports and exports in Japan dropped more than expected during November. This, along with a generally positive tone around the equity markets, is seen undermining the safe-haven JPY. The USD, on the other hand, attracts some buyers amid the uncertainty over the timing of when the Federal Reserve (Fed) will start cutting interest rates and turns out to be another factor lending some support to the USD/JPY pair. Traders also seem reluctant to place aggressive directional bets ahead of a key US inflation reading.

The US Core Personal Consumption Expenditure (PCE) Price Index – the Fed's preferred inflation gauge – is due for release on Friday. The data should influence the Fed's future policy decisions, which will play a key role in driving the USD demand and provide a fresh directional impetus to the USD/JPY pair. In the meantime, the Conference Board's Consumer Confidence Index and Existing Home Sales data, along with Chicago Fed President Austan Goolsbee's appearance, will be looked upon for short-term trading opportunities later during the North American session on Wednesday.

Daily Digest Market Movers: Japanese Yen sticks to its modest intraday gains against the USD

Bets that the Federal Reserve will start cutting rates by the first half of 2024 continues to weigh on the US Dollar and prompts some selling around the USD/JPY pair on Wednesday.
Chicago Fed President Austan Goolsbee, in an interview with Fox TV, cautioned that markets have gotten ahead of themselves and the central bank should not be bullied by what the market wants.
The US Census Bureau reported on Tuesday that Housing Starts surged 14.8% in November to 1.56 million units, while Building Permits declined 2.5% after rising 1.8% (revised from 1.1%) in October.
The USD bulls, meanwhile, seem unimpressed by the fact that a slew of influential FOMC members recently pushed back against market expectations for early interest rate cuts in 2024.
The Bank of Japan decided to leave its ultra-loose monetary policy unchanged on Tuesday and gave no sign that negative rates were set to end, which could undermine the Japanese Yen.
In the post-meeting press conference, BoJ Governor Kazuo Ueda reiterated that the central bank won't hesitate to take additional easing measures and will keep scrutinising the wage-price virtuous cycle.
Analysts are now dismissing the idea of a January BoJ policy pivot, arguing that a monetary tightening would not help the economy and is not really desirable in theory.
Data released this Wednesday showed that Japan's trade deficit narrowed to ¥776.9 billion in November, with imports falling 11.9% and exports dipping 0.2% on the back of weak Chinese demand.
The prevalent risk-on environment might further dent the JPY's relative safe-haven status and help limit any meaningful downside for the USDJPY pair.
Traders now look to the release of the Conference Board's Consumer Confidence Index, though the focus will remain on a key US inflation reading – the US Core PCE Price Index on Friday.

Technical Analysis: USD/JPY needs to conquer 145.00 for bulls to seize near-term control

From a technical perspective, the post-BoJ rally falters near the 38.2% Fibonacci retracement level of the November-December downfall from the 152.00 neighbourhood. The said barrier is pegged near the 145.00 mark, which should now act as an immediate strong resistance and a key pivotal point. A sustained strength beyond will suggest that the USD/JPY pair has formed a near-term bottom and pave the way for some meaningful appreciating move. The subsequent move-up has the potential to lift spot prices to the next relevant hurdle near the mid-145.00s en route to the 146.00 round figure and the 50% Fibo. level, around the 146.40 region.

On the flip side, weakness below the 143.55-143.50 region, representing the 23.6% Fibo. level, could find some support near the 143.00 round figure. This is followed by a technically significant 200-day Simple Moving Average, currently pegged near the 142.65 zone, which if broken decisively will shift the bias back in favour of bearish traders. The USD/JPY pair might then turn vulnerable to weaken further below the 142.00 mark and accelerate the slide to the 141.75 horizontal support before aiming to retest sub-141.00 levels, or a multi-month low touched last week.

Japanese Yen price this week

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the weakest against the Swiss Franc.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.68%	-0.37%	-0.26%	-0.96%	1.12%	-0.92%	-1.13%
EUR	0.67%		0.31%	0.43%	-0.25%	1.80%	-0.23%	-0.43%
GBP	0.37%	-0.31%		0.11%	-0.58%	1.49%	-0.54%	-0.76%
CAD	0.26%	-0.43%	-0.12%		-0.70%	1.40%	-0.67%	-0.87%
AUD	0.93%	0.26%	0.57%	0.68%		2.07%	0.03%	-0.17%
JPY	-1.17%	-1.87%	-1.54%	-1.42%	-2.12%		-2.10%	-2.31%
NZD	0.91%	0.22%	0.55%	0.66%	-0.03%	2.03%		-0.21%
CHF	1.11%	0.42%	0.74%	0.86%	0.17%	2.22%	0.21%

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).

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus 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. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.

Is the Bank of Japan’s ultra-loose policy likely to change soon?

A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.

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