Japanese Yen slides to fresh daily low against USD; traders seem non-committed
- The Japanese Yen struggles to capitalize on modest uptick led by revised GDP from Japan.
- Doubts over the BoJ’s ability to hike interest rates further act as a headwind for the JPY.
- Suppressed US bond yields could offset modest USD strength and cap the USD/JPY pair.
The Japanese Yen (JPY) attracts some sellers following an Asian session uptick led by an upward revision of Japan's GDP print for the third quarter, which, along with a modest US Dollar (USD) uptick, lifts the USD/JPY pair back above the 150.00 mark. Doubts over whether the Bank of Japan (BoJ) will hike interest rates further in December turned out to be a key factor behind the JPY's relative underperformance against its American counterpart.
Meanwhile, bets that the Federal Reserve (Fed) will lower borrowing costs in December keep the US Treasury bond yields depressed and hold back the JPY bears from placing aggressive bets. Apart from this, geopolitical tensions and concerns about US President-elect Donald Trump's impending trade tariffs should contribute to limiting the downside for the safe-haven JPY. Investors might also opt to wait on the sidelines ahead of the US consumer inflation figures this week, which should offer cues about the Fed's rate-cut path and provide a fresh impetus to the USD/JPY pair.
Japanese Yen bulls remain on the sidelines amid BoJ rate-hike uncertainty
- Japan’s third-quarter GDP was revised to show a 0.3% growth as compared to the 0.2% estimated originally. On a yearly basis, the economy expanded by 1.2%, above prior estimates of 0.9%.
- The yearly rate marks a sharp slowdown from the 2.2% rise in the prior quarter, while sluggish private consumption suggests that the boost from bumper wage hikes is running out of steam.
- This, in turn, raises doubts over whether the Bank of Japan has enough headroom to raise interest rates further and fails to assist the Japanese Yen to build on a modest intraday uptick on Monday.
- The US Nonfarm Payrolls (NFP) report released on Friday revealed that the economy added 227K jobs in November against the previous month's upwardly revised 36K and 200K anticipated.
- Additional details of the report showed that the Unemployment Rate edged up to 4.2% in November from 4.1%, as expected, and the Average Hourly Earnings held steady at 4% vs 3.9% forecasted.
- The crucial jobs data reaffirmed market expectations that the Federal Reserve is unlikely to pause in its easing cycle and lower borrowing costs again at its upcoming policy meeting in December.
- The University of Michigan’s preliminary gauge of US consumer sentiment rose to 74.0 in December reading from 71.8 while one-year inflation expectations rose to 2.9% from 2.6% in November.
- Cleveland Fed President Beth Hammack noted that the economic landscape calls for modestly restrictive policy, though the market view of one cut between now and late January is reasonable.
- San Francisco Fed President Mary Daly said that the labor market remains in a good position and that the central bank will still step in with additional rate hikes if price growth begins to spiral once again.
- Chicago Fed President Austan Goolsbee stated that the overall progress on inflation is still encouraging and any pause in the rate-cutting would come if conditions in inflation or the labor market change.
- Fed Governor Michelle Bowman said that she prefers to cut the interest rates cautiously and emphasized that the underlying inflation remains uncomfortably above the central bank’s 2% goal.
- The yield on the benchmark 10-year US government bond hangs near its lowest level since October 21, capping the US Dollar recovery from a multi-week low and supporting the lower-yielding JPY.
USD/JPY could face stiff hurdle and remain capped near the 150.55 area
From a technical perspective, the range-bound price action could be categorized as a bearish consolidation phase against the backdrop of the recent pullback from a multi-month top touched in November. Moreover, oscillators on the daily chart are holding in negative territory and suggest that the path of least resistance for the USD/JPY pair is to the downside. That said, last week's resilience below the 100-day Simple Moving Average (SMA) warrants some caution for bearish traders.
In the meantime, the post-NFP low, around the 149.35 area, now seems to act as immediate support ahead of the 149.00 mark and the 100-day SMA, currently pegged near the 148.70-148.65 region. The latter coincides with a nearly two-month low touched last Tuesday and should act as a key pivotal point. Some follow-through selling could drag the USD/JPY pair to the 148.10-148.00 region en route to the 147.35-147.30 zone and the 147.00 round figure.
On the flip side, attempted recovery might now confront some resistance near the 150.55 region. This is followed by the 150.70 hurdle, the 151.00 round figure and last week's swing high, around the 151.20-151.25 zone. A sustained move beyond the latter should allow the USD/JPY pair to test the very important 200-day SMA near the 152.00 mark. Some follow-through buying will suggest that the corrective decline from a multi-month high has run its course and shift the bias in favor of bullish traders.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
