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Japanese Yen languishes near one-week low against USD, focus remains on BoJ and Fed

  • The Japanese Yen is undermined by reduced bets for an imminent shift in the BoJ's policy stance.
  • Hawkish Fed expectations act as a tailwind for the USD and lend support to the USD/JPY pair.
  • Investors now look to the BoJ and Fed policy decisions before placing fresh directional bets.

The Japanese Yen (JPY) drifts lower against its American counterpart for the fifth straight day on Monday and drops to a one-and-half-week low amid expectations that the Bank of Japan's (BoJ) super-easy monetary policy is not over yet. In fact, the BoJ Governor Kazuo Ueda last week offered a slightly bleaker assessment of the economy. Adding to this, the BoJ announced that it will conduct an unscheduled bond operation this week. This, in turn, undermines the JPY and assists the USD/JPY pair in building on last week's positive move beyond the 149.00 mark. 

That said, the positive outcome from the spring wage negotiations should allow the BoJ to exit its negative interest rate policy in April, if not in March. This, along with subdued US Dollar (USD) demand, amid the uncertainty over the Federal Reserve's (Fed) rate cut path, might keep a lid on any further appreciating move for the USD/JPY pair. Traders might also prefer to wait on the sidelines ahead of the BoJ decision on Tuesday, which will be followed by the outcome of the two-day FOMC policy meeting on Wednesday and provide a fresh directional impetus. 

Daily Digest Market Movers: Japanese Yen continues losing ground amid the BoJ policy uncertainty

  • The Bank of Japan Governor Kazuo Ueda sounded a bit dovish last week and said that policymakers will debate whether the outlook is bright enough to phase out the massive monetary stimulus, which is seen undermining the Japanese Yen.
  • The BoJ will conduct an unscheduled bond operation, offering to buy 3 trillion yen of Japanese government bonds (JGBs) in an agreement starting on Tuesday and ending on Thursday, suggesting that the BoJ's easy policy might not be over yet.
  • Data released earlier this Monday showed that Machinery Orders in Japan fell more than expected, by 1.7% in January, and turns out to be another factor exerting pressure on the JPY, though the downside is more likely to remain limited.
  • Japan’s Chief Cabinet Secretary Yoshimasa Hayashi  said that he expects the BoJ to work closely with the government and take appropriate policy to sustainably and stably achieve its price target accompanied by wage rises.
  • Rengō – Japan's largest trade union confederation – said that average wage demands topped 5% for the first time since 1994, setting the stage for the BoJ to exit the negative rates policy sooner rather than later, which should limit the JPY losses.
  • Meanwhile, the hotter-than-expected US producer and consumer price data released last week forced investors to trim their bets for a more aggressive policy easing by the Federal Reserve, which continues to lend some support to the US Dollar.
  • The University of Michigan's preliminary survey report showed that the US Consumer Sentiment Index ticked lower to 76.5 in March, from 76.9 in February, while one-year and five-year inflation expectations were little changed this month.
  • Investors might now prefer to move to the sidelines and look to the latest monetary policy updates by the BoJ and the Fed on Tuesday and Wednesday, respectively, before determining the next leg of a directional move for the USD/JPY pair.

Technical Analysis: USD/JPY bulls gearing up for a move towards reclaiming the 150.00 psychological mark

From a technical perspective, a move beyond the 61.8% Fibonacci retracement level of the February-March downfall might have already set the stage for additional gains. Given that oscillators on the daily chart have just started gaining positive traction, the USD/JPY pair seems poised to appreciate further towards the 149.75-149.80 horizontal resistance. Some follow-through buying, leading to a subsequent move beyond the 150.00 psychological mark, might trigger a short-covering rally towards the 150.65-150.70 region en route to the 151.00 neighbourhood, or the YTD peak touched on February 13.

On the flip side, the Asian session low, around the 149.00 mark, now seems to protect the immediate downside. Any further downfall is more likely to attract some dip-buying and remain limited near the 148.30 region. This is followed by the 148.00 round figure, below which the USD/JPY pair could accelerate the slide towards the 100-day Simple Moving Average (SMA), currently pegged near the 147.65 region. A convincing break below might shift the bias in favour of bearish traders and drag spot prices to the 147.00 mark en route to the monthly swing low, around the 146.50-146.45 region.

Economic Indicator

Japan BoJ Interest Rate Decision

The Bank of Japan (BoJ) announces its interest rate decision after each of the Bank’s eight scheduled annual meetings. Generally, if the BoJ is hawkish about the inflationary outlook of the economy and raises interest rates it is bullish for the Japanese Yen (JPY). Likewise, if the BoJ has a dovish view on the Japanese economy and keeps interest rates unchanged, or cuts them, it is usually bearish for JPY.

Read more.

Next release: 03/19/2024 03:00:00 GMT

Frequency: Irregular

Source: Bank of Japan

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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