Japanese Yen languishes near multi-decade low, seems vulnerable to slide further
- The Japanese Yen fails to lure buyers despite intervention fears and the risk-off impulse.
- The BoJ’s cautious outlook continues to undermine the JPY and lend support to USD/JPY.
- Reduced bets for a June Fed rate cut lift the USD to a multi-week top and act as a tailwind.
The Japanese Yen (JPY) remains on the back foot against its American counterpart for the second successive day on Tuesday and languishes near a multi-decade low heading into the European session. The Bank of Japan's (BoJ) cautious approach and uncertain outlook about further policy tightening turned out to be a key factor that continues to undermine the JPY. Apart from this, some follow-through US Dollar (USD) strength assists the USD/JPY pair to attract some dip-buying near the mid-151.00s.
The downside for the JPY, however, remains limited in the wake of the recent jawboning by Japanese authorities. This, along with a generally softer tone around the equity markets, lends some support to the safe-haven JPY and might contribute to keeping a lid on any meaningful appreciating move for the USD/JPY pair. Traders now look to the US economic docket – featuring JOLTS Job Openings and Factory Orders – and speeches by a slew of influential FOMC members for a fresh impetus.
Daily Digest Market Movers: Japanese Yen continues to be undermined by BoJ's dovish outlook
- Speculations that Japanese authorities will intervene in the markets to prop up the domestic currency lend some support to the Japanese Yen, though the Bank of Japan's cautious outlook keeps a lid on any meaningful gains.
- Japan's Finance Minister Shunichi Suzuki reiterated his warning on the recent rapid JPY moves and said on Monday that he would respond appropriately and would not rule out options against excessive volatility.
- Reports that Israeli warplanes bombed Iran's embassy in Syria raise the risk of a further escalation of geopolitical tensions in the Middle East, tempering investors' appetite for riskier assets and benefitting the safe-haven JPY.
- Investors lowered their bets that the Federal Reserve will cut rates in June after the Institute for Supply Management reported that the US manufacturing sector expanded in March to end 16 straight months of contraction.
- The yield on the rate-sensitive two-year and the benchmark 10-year US government bonds climbed to a two-week peak after the upbeat data, pushing the US Dollar to a seven-week top and lending support to the USD/JPY pair.
- Traders now look to the US economic docket – featuring the release of JOLTS Job Openings and Factory Orders – and speeches by influential FOMC members for some meaningful impetus later during the North American session.
Technical Analysis: USD/JPY could climb further above multi-decade top near the 152.00 mark
From a technical perspective, the range-bound price action witnessed over the past two weeks or so might still be categorized as a bullish consolidation phase on the back of a strong rally from the March swing low. Moreover, oscillators on the daily chart are holding in the positive territory and are still far from being in the overbought zone. This, in turn, validates the near-term positive outlook for the USD/JPY pair. That said, it will still be prudent to wait for a move beyond a multi-decade high, around the 152.00 mark set last week, before positioning for any further appreciating move.
On the flip side, a slide back towards the 151.00 round figure might now be seen as a buying opportunity and remain limited near the 150.85-150.80 horizontal resistance breakpoint. Some follow-through selling, however, could expose the next relevant support near the 150.25 area. This is closely followed by the 150.00 psychological mark, which, if broken decisively, might turn the USD/JPY pair vulnerable to accelerate the corrective decline further towards the 149.35-149.30 region before eventually dropping to the 149.00 mark.
Japanese Yen FAQs
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.
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.
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.
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.
