Japanese Yen consolidates below one-month peak against USD, BoJ pivot bets favour bulls

  • The Japanese Yen continues to draw support from expectations for a hawkish BoJ pivot.
  • An upward revision of Japan’s Q4 GDP print and a softer risk tone also benefit the JPY.
  • Bets for a June Fed rate cut undermine the USD and also contribute to capping USD/JPY.

The Japanese Yen (JPY) enters a bullish consolidation phase on Monday and oscillates in a narrow range just below its highest level since early February touched against its American counterpart last week. Media reports over the weekend suggested that the Bank of Japan (BoJ) could end its yield curve control policies as soon as the March 18-19 meeting. This, along with hopes that another substantial pay hike in Japan will fuel demand-driven inflationary pressure and an upward revision of Japan's Q4 GDP print, reaffirms bets for an imminent shift in the BoJ's policy stance and underpin the JPY. 

Apart from this, a generally weaker tone around the equity markets turns out to be another factor lending some support to the safe-haven JPY, though a modest US Dollar (USD) uptick helps limit losses for the USD/JPY pair. Any meaningful recovery, however, still seems elusive in the wake of growing acceptance that the Federal Reserve (Fed) will start cutting interest rates at the June policy meeting, which should hold back the USD bulls from placing aggressive bets. Investors might also prefer to wait on the sidelines ahead of the US consumer inflation figures, due for release on Tuesday.

Daily Digest Market Movers: Japanese Yen bulls take breather ahead of the US CPI on Tuesday

  • The Japanese Yen remains on the front foot against its American counterpart for the sixth successive day on Monday amid bets that the Bank of Japan (BoJ) will end its negative rate policy in March.
  • Jiji News Agency reported over the weekend that the BoJ is considering scrapping its yield curve control program and indicating in advance the amount of government bonds it plans to purchase.
  • Furthermore, data released last week showed that wage growth in Japan marked the highest rise since last June and reaffirmed market bets for an imminent shift in the BoJ's monetary policy stance.
  • A revised GDP report showed on Monday that Japan's economy expanded by 0.1% during the fourth quarter as against a 0.1% contraction reported previously and avoided a technical recession.
  • This gives the BoJ more headroom to pivot away from its ultra-loose monetary policy settings, which continue to underpin the JPY and keep the USD/JPY pair depressed near a one-month low.
  • A spike in the US unemployment rate to its highest level in two years lifted bets for a June rate cut by the Federal Reserve and dragged the US Dollar to its lowest level since mid-January on Friday.
  • The headline NFP showed that the US economy added 275K jobs in February vs. 200K estimated, through was offset by a downward revision of the previous month's reading to 229K from 353K.
  • The possibility of a May interest rate cut by the Fed climbed to around 30% after the crucial jobs report, though the June policy meeting remains the most likely timing for any such move.
  • The yield on the 10-year US government bond languishes near its lowest level in more than one month, which should cap any meaningful USD recovery and act as a headwind for the currency pair. 
  • Investors now look forward to the release of the latest US consumer inflation figures on Tuesday for a fresh impetus, though the near-term bias seems tilted firmly in favour of the JPY bulls.

Technical Analysis: USD/JPY manages to hold above 200-day SMA, not out of the woods yet

From a technical perspective, Friday's breakdown below the 100-day Simple Moving Average (SMA) was seen as a fresh trigger for bearish traders. This comes on top of the recent repeated failures ahead of the 152.00 mark, which constituted the formation of a double-top pattern on the daily chart. Moreover, oscillators on the said chart are holding deep in the negative territory and validate the bearish outlook for the USD/JPY pair. That said, it will still be prudent to wait for acceptance below the 38.2% Fibonacci retracement level of the December-February rally before positioning for further losses. Some follow-through selling below the 200-day SMA, currently pegged near the 146.30-146.25 region, will reaffirm the negative bias and drag spot prices below the 146.00 round figure, towards the 50% Fibo. level, around the 145.60 zone.

On the flip side, any meaningful recovery attempt beyond the 147.00 round figure is more likely to attract fresh sellers and remain capped near the 100-day SMA support breakpoint, now turned resistance near mid-147.00s. A sustained strength beyond, however, could trigger a short-covering rally and lift the USD/JPY pair beyond the 148.00 mark, towards testing the next relevant hurdle near the 148.65-148.70 region. The momentum could extend further towards reclaiming the 149.00 round figure en route to the 149.25 horizontal support-turned-resistance.

Japanese Yen price today

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the Pound Sterling.

USD   0.01% 0.01% -0.03% 0.15% 0.14% 0.09% -0.01%
EUR -0.01%   -0.02% -0.05% 0.14% 0.12% 0.06% -0.02%
GBP 0.00% 0.01%   -0.03% 0.14% 0.15% 0.10% 0.00%
CAD 0.04% 0.04% 0.04%   0.18% 0.15% 0.10% 0.02%
AUD -0.15% -0.14% -0.14% -0.19%   -0.01% -0.06% -0.16%
JPY -0.12% -0.14% 0.11% -0.19% 0.03%   -0.04% -0.14%
NZD -0.09% -0.06% -0.09% -0.13% 0.06% 0.05%   -0.11%
CHF 0.03% 0.04% 0.02% -0.01% 0.18% 0.13% 0.09%  

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).

Economic Indicator

United States Consumer Price Index (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Read more.

Next release: 03/12/2024 12:30:00 GMT

Frequency: Monthly

Source: US Bureau of Labor Statistics

Why it matters to traders

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

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