Japanese Yen recovers major part of intraday losses to two-week low against US Dollar
- The Japanese Yen meets with a fresh supply in reaction to the dismal domestic data.
- A softer risk tone and expectations of a hawkish BoJ pivot help limit any further losses.
- Traders now look to the US ADP report for some impetus ahead of the NFP on Friday.
The Japanese Yen (JPY) recovers a major part of its intraday losses to a near two-week low, though remains on the defensive for the third successive day against the US Dollar (USD). Concerns about a further escalation of geopolitical tensions in the Middle East, along with a weaker economic recovery in China, continue to weigh on investors' sentiment. This is evident from a generally weaker tone around the equity markets, which, along with the growing conviction that the Bank of Japan (BoJ) will shift away from its ultra-loose policy settings, lends support to the safe-haven JPY.
The USD, on the other hand, comes under some selling pressure on Thursday and for now, seems to have snapped a four-day winning streak to its highest level since December 14. The global flight to safety and bets that the Federal Reserve (Fed) will soon start cutting interest rates keep a lid on any meaningful upside for the US Treasury bond yields, which, in turn, is seen undermining the Greenback. This fails to assist the USD/JPY pair to build on its intraday positive move and attracts some sellers in the vicinity of the 144.00 round-figure mark, though the downside seems limited.
Traders now seem reluctant to place aggressive directional bets and might prefer to wait for more clarity about the Fed's future policy move. Hence, the focus will remain glued to the release of the official US jobs data, popularly known as the Nonfarm Payrolls (NFP) report on Friday. In the meantime, Thursday's US economic docket, featuring the ADP report on private-sector employment and the usual Initial Jobless Claims will be looked upon for short-term trading opportunities later during the early North American session.
Daily Digest Market Movers: Japanese Yen rebounds after touching two-week low against USD
- The Japanese Yen weakens to a near two-week low against the US Dollar on Thursday, though a a combination of supporting factors helps limit any further losses.
- The au Jibun Bank Japan Manufacturing PMI remained in contraction territory for the seventh straight month and shrank to 47.9 in December – its weakest reading since February.
- The anticipation of a reversal in policy divergence between the Bank of Japan (BoJ) and the Federal Reserve (Fed) in 2024 should continue to lend some support to the JPY.
- Minutes of the December 12-13 FOMC meeting reflected a consensus that inflation is under control and concern about the risks that overly restrictive policy may pose to the economy.
- The minutes, however, did not provide direct clues about when rate cuts might commence, which, in turn, is seen acting as a tailwind for the US bond yields and the US Dollar.
- The Institute for Supply Management (ISM) said on Wednesday that the pace of decline in the US manufacturing sector slowed amid a modest rebound in production and improvement in factory employment.
- The US ISM Manufacturing PMI improved to 47.4 last month after being unchanged at 46.7 for two straight months, though remained in contraction territory for the 14th consecutive month.
- Separately, the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) showed that employment listings fell to 8.79 million in November – the lowest since March 2021.
- Investors now look to the US ADP report, which is expected to show that private-sector employers added 115K jobs in December as compared to the 103K in the previous month.
- The market focus, however, will remain glued to the official monthly employment details – popularly known as the Nonfarm Payrolls (NFP) report on Friday.
Technical Analysis: USD/JPY needs to move beyond 144.00 for bulls to seize near-term control
From a technical perspective, the overnight move beyond the 143.00-143.10 confluence, comprising the 200-day Simple Moving Average (SMA) and the 23.6% Fibonacci retracement level of the November-December downfall, favours bullish traders. Furthermore, a move beyond the overnight swing high might have already set the stage for additional gains. That said, oscillators on the daily chart – though have been recovering from lower levels – are yet to confirm a positive bias. Hence, it will be prudent to wait for some follow-through buying beyond the 144.00 mark before confirming that the USD/JPY pair has formed a near-term bottom and positioning for further gains.
Spot prices might then accelerate the positive momentum further towards the 38.2% Fibo. level, around the 144.65 zone. The upward trajectory could get extended further and allow the USD/JPY pair to aim back towards reclaiming the 145.00 psychological mark. On the flip side, the 143.15-143.10 area (200-day SMA) now seems to protect the immediate downside ahead of the Asian session low, around the 142.85 region. A convincing break below the latter could make the USD/JPY pair vulnerable to slide back towards the 142.00 mark en route to the 141.75 horizontal zone and the 141.00 round figure.
Japanese Yen price this week
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the weakest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 1.24% | 0.52% | 0.73% | 1.20% | 1.64% | 1.20% | 1.12% | |
| EUR | -1.08% | -0.53% | -0.35% | 0.16% | 0.47% | 0.13% | -0.01% | |
| GBP | -0.54% | 0.55% | 0.21% | 0.68% | 1.20% | 0.68% | 0.52% | |
| CAD | -0.73% | 0.34% | -0.04% | 0.48% | 0.95% | 0.46% | 0.33% | |
| AUD | -1.22% | -0.13% | -0.68% | -0.49% | 0.23% | 0.01% | -0.13% | |
| JPY | -1.66% | -0.39% | -1.06% | -0.72% | -0.23% | -0.28% | -0.60% | |
| NZD | -1.21% | -0.12% | -0.68% | -0.48% | 0.01% | 0.27% | -0.14% | |
| CHF | -1.05% | 0.04% | -0.51% | -0.29% | 0.18% | 0.58% | 0.17% |
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).
Bank of Japan FAQs
What is the Bank of Japan?
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
What has been the Bank of Japan’s policy?
The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.
How do Bank of Japan’s decisions influence the Japanese Yen?
The Bank’s massive stimulus 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 policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.
Is the Bank of Japan’s ultra-loose policy likely to change soon?
A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
