Japanese Yen extends its consolidative price move in a multi-day-old trading range


  • The Japanese Yen continues with its struggle to gain any meaningful traction on Tuesday.
  • Intervention fears lend some support, while the BoJ policy uncertainty acts as a headwind.
  • Tuesday's US macro data to provide some impetus ahead of the US PCE Price Index on Friday.

The Japanese Yen (JPY) ticks higher against its American counterpart on Tuesday, albeit lacks follow-through and oscillates in a narrow range heading into the European session. Speculations that Japanese authorities will intervene in the markets to prop up the domestic currency turn out to be a key factor lending some support to the JPY. Apart from this, persistent geopolitical risks stemming from Eastern Europe and the Middle East further underpin demand for the safe-haven JPY. 

The upside, however, remains capped amid the uncertainty over the Bank of Japan's (BoJ) future policy steps. This, along with the underlying bullish sentiment around the equity markets, should cap gains for the JPY. The US Dollar (USD), on the other hand, is pressured by the Federal Reserve's (Fed) projected less restrictive monetary policy going forward. This could further contribute to keeping a lid on any meaningful appreciating move for the USD/JPY pair. 

Traders now look to the US economic data – Durable Goods Orders, the Conference Board's Consumer Confidence Index and the Richmond Manufacturing Index – for some short-term opportunities later during the North American session. The focus, however, will remain on the US Personal Consumption and Expenditure (PCE) Price Index, or the Fed's preferred inflation gauge, due for release on Friday and provide a fresh directional impetus to the USD/JPY pair. 

Daily Digest Market Movers: Japanese Yen struggles for a firm direction amid the BoJ policy uncertainty

  • Japan's Vice Minister of Finance for International Affairs, Masato Kanda, lifts the threat of actual intervention on Monday and turns out to be a key factor in lending some support to the Japanese Yen.
  • Kanda said that the movement in the JPY was not in line with fundamentals and was driven by speculation and that authorities will take action against excessive fluctuations without ruling out any options.
  • Adding to this, Finance Minister Shunichi Suzuki reiterated on Tuesday that it is important for currencies to move in a stable manner reflecting fundamentals and that rapid FX moves are undesirable.
  • The Bank of Japan indicated last week that financial conditions would remain accommodative and fell short of offering any guidance about the pace of policy normalization, capping gains for the JPY.
  • Consumer inflation in Japan remains above the central bank's 2% target, which, along with the positive outcome of spring wage negotiations, supports prospects for further policy tightening by the BoJ.
  • Last week, the Federal Reserve upgraded its real GDP growth estimates to 2.1% by the end of this year from 1.4%, as projected in December, and also raised the forecast for core inflation to 2.6% from 2.4%.
  • The Fed, however, signaled that it remains on track to cut interest rates by 75 basis points this year despite concerns about still-sticky inflation and the incoming stronger-than-expected economic data.
  • Atlanta Fed President Raphael Bostic said on Monday that he expects the US economy and inflation to slow gradually and anticipates the US central bank will lower the policy rate only once this year.
  • Chicago Fed President Austan Goolsbee noted that three cuts in 2024 were in line with his thinking, though the US central bank needs to see progress in inflation and strike a balance with its dual mandate.
  • Separately, Fed Governor Lisa Cook said inflation had fallen considerably, though the path of disinflation, as expected, has been bumpy and uneven, while the labor market has remained strong.
  • Investors now look forward to the release of the BoJ Core CPI for some meaningful impetus ahead of the US macro data –Durable Goods Orders and the Conference Board's Consumer Confidence Index.

Technical Analysis: USD/JPY seems poised to challenge the multi-decade high around 152.00 touched in 2022

From a technical perspective, last week's swing high, around the 151.85 region, could act as an immediate hurdle. Some follow-through buying beyond the multi-decade high, around the 152.00 mark touched in November 2022, will be seen as a fresh trigger for bullish traders. The USD/JPY pair might then build on its well-established uptrend witnessed since January 2023. On the flip side, the 151.00 mark now seems to have emerged as strong support, below which spot prices could accelerate the fall to the 150.25 region. This is followed by the 150.00 psychological mark, which, if broken, will expose the next relevant support near the 149.35-149.30 region before the pair eventually drops to the 149.00 round-figure 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.

 

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