Japanese Yen seems poised to strengthen further against US Dollar

  • The Japanese Yen strengthens against the US Dollar and draws support from a combination of factors. 
  • Speculations of a hawkish shift in the BoJ’s policy stance lift the JPY and weigh on the USD/JPY pair.
  • Bets that the Fed is done raising rates cap the recent USD recovery and also exert pressure on the major. 

The Japanese Yen (JPY) recovery some of its losses against the US Dollar (USD) registered over the past two days and seems poised to appreciate further amid expectations that the Bank of Japan (BoJ) is getting closer to exiting the decade-long extremely accommodative monetary policy settings. This, along with the emergence of fresh USD selling, keeps the USD/JPY pair depressed near the 149.00 mark through the early European session on Thursday. 

The hawkish FOMC minutes-inspired USD recovery move from its lowest level since August 31 runs out of steam in the wake of rising bets that the Federal Reserve (Fed) is done with its policy-tightening campaign. Moreover, the markets are pricing in the possibility that the US central bank will start cutting rates during the first half of 2024. This, in turn, keeps the yield on the benchmark 10-year US government bond close to a two-month low and is seen undermining the buck.

Daily Digest Market Movers: Japanese Yen sticks to gains

  • The Japanese Yen weakened to 149.75 against the US Dollar on Wednesday, albeit recovered some of its losses registered over the past two days on Thursday.
  • Speculations that the Bank of Japan (BoJ) will almost certainly end its negative rate policy in the first few months of 2024 dragged the USD/JPY lower on Thursday.
  • Minutes from the Federal Reserve's last meeting indicated the central bank was likely to maintain a restrictive stance on interest rates for some time.
  • The US Initial Jobless Claims dropped by 24,000 to a seasonally adjusted 209,000 for the week ended November 18, the lowest level in more than a month.
  • The upbeat data suggested that the US labor market remains resilient despite economic uncertainties and is not cooling as quickly as the Fed might have been expecting.
  • The University of Michigan's survey showed that the Consumer Sentiment Index marked a fourth straight month of declines and came in at 61.3 for November.
  • Inflation expectations, however, jumped to 4.5% in November, up from the 4.2% previous, rising for the second straight month and reaching to its highest reading since April 2023.
  • Durable Goods Orders experienced a significant decline in October and dropped more than anticipated, by 5.4%, reversing the previous month's gain of 4.6%.
  • Market participants have essentially priced out any further interest rate hikes by the Fed and now see a better than 50% chance of a rate cut by May 2024.
  • Traders also opt to lighten their positions during the Asian session as trading activity is likely to remain limited on the back of the US Thanksgiving holiday.
  • Traders now look to flash PMI prints from the Eurozone and the UK, which could impact the global risk sentiment and influence the safe-haven JPY.
  • The focus will then shift to the National  core CPI from Japan, due for release during the Asian session on Friday, followed by the flash US PMIs later during the day. 

Technical Analysis: USD/JPY shows some resilience below 149.00

From a technical perspective, the USD/JPY pair has now dropped below the 23.6% Fibonacci retracement level of the latest leg up from the 147.15 area. A subsequent slide below the 149.00 mark will set the stage for a slide towards the 38.2% Fibo. level, around the 148.75 region. This is followed by support near mid-148.00s, or the 50% Fibo. level, and 61.8% Fibo. level, around the 148.15 region. A convincing break below the latter will suggest that the corrective bounce has run its course and expose the monthly swing low, around the 147.15 region touched on Tuesday, with some intermediate support near the 148.00 round figure.

On the flip side, the overnight swing high, around the 149.75 region, now seems to act as an immediate hurdle ahead of the 150.00 confluence, comprising the 200-period Simple Moving Average (SMA) on the 4-hour chart and the 61.8% Fibo. level. This is followed by the 100-period SMA on the 4-hour chart, currently near the 150.35 zone, which if cleared decisively will negate any near-term negative bias. The USD/JPY pair might then aim to reclaim the 151.00 mark before climbing further towards challenging the YTD peak, just ahead of the 152.00 mark.

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Canadian Dollar.

USD   -0.16% -0.17% -0.10% -0.25% -0.27% -0.58% -0.13%
EUR 0.17%   0.01% 0.04% -0.09% -0.10% -0.41% 0.04%
GBP 0.15% -0.01%   0.04% -0.11% -0.10% -0.44% 0.03%
CAD 0.12% -0.04% -0.03%   -0.13% -0.14% -0.43% -0.01%
AUD 0.24% 0.11% 0.10% 0.14%   -0.01% -0.30% 0.12%
JPY 0.28% 0.12% 0.12% 0.18% 0.01%   -0.30% 0.15%
NZD 0.57% 0.41% 0.42% 0.45% 0.32% 0.31%   0.44%
CHF 0.13% -0.03% -0.03% 0.01% -0.14% -0.14% -0.47%  

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).

Japanese Yen FAQs

What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

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.

How does broader risk sentiment impact 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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