Japanese Yen ticks higher against USD amid the flight to safety, lacks bullish conviction

  • The Japanese Yen attracts some haven flows amid deepening geopolitical tensions. 
  • The USD holds steady below the monthly peak and might lend support to USD/JPY.
  • Traders might also wait for the crucial FOMC meeting amid the rate cut uncertainty. 

The Japanese Yen (JPY) attracts some buyers following an intraday downtick on Monday and trades with a mild positive bias against its American counterpart heading into the European session. A further escalation of conflicts in the Middle East tempers investors' appetite for riskier assets, which is evident from a generally softer tone around the equity markets. This, along with the Bank of Japan's (BoJ) hawkish tilt last week, signalling that conditions for phasing out huge stimulus and pulling short-term interest rates out of negative territory were falling into place, lends some support to the safe-haven JPY. 

The US Dollar (USD), on the other hand, extends its sideways consolidative price move and remains confined in a familiar band held over the past two weeks or so. This, in turn, acts as a headwind for the USD/JPY pair amid a modest decline in the US Treasury bond yields. It, however, remains to be seen if the JPY can build on the uptick as traders might prefer to wait on the sidelines ahead of the highly-anticipated two-day FOMC meeting starting on Tuesday. Investors this week will also confront important US macro releases scheduled at the start of a new month, including the Nonfarm Payrolls (NFP) on Friday.

In the meantime, diminishing odds for a more aggressive policy easing by the Federal Reserve (Fed) and the uncertainty over the timing of the first interest rate cut should limit any meaningful USD slide in the absence of any relevant macro data. Adding to this, the weaker Tokyo Core CPI released on Friday might contribute to capping any further appreciating move for the JPY. Hence, it will be prudent to wait for strong follow-through selling around the USD/JPY pair before confirming that a two-day-old uptrend and the recent bounce from the 146.65 region, or last week's swing low has run out of steam. 

Daily Digest Market Movers: Japanese Yen ticks higher amid BoJ's hawkish tilt, geopolitical tensions

  • A further decline in the Tokyo CPI raised doubts that the Bank of Japan will phase out negative interest rates anytime soon and is seen undermining the Japanese Yen.
  • The US Dollar stands tall near its highest level since December 13 touched last week and turns out to be another factor acting as a tailwind for the USD/JPY pair.
  • Traders, however, seem reluctant and might prefer to move to the sidelines ahead of the crucial two-day FOMC monetary policy meeting starting on Tuesday.
  • Data released on Friday showed that inflation rose modestly in December and reaffirmed expectations that the Federal Reserve will cut rates by the middle of 2024.
  • The US Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) Price Index held steady at 2.6% on a yearly basis in December.
  • The annual Core PCE Price Index, the Fed's preferred gauge of inflation, decelerated more than expected, to 2.9% from 3.2% in November.
  • Other details showed that Personal Spending rose 0.7% in December while Personal Income grew 0.3%, pointing to strong demand from US consumers.
  • This comes on the back of the upbeat US Q4 GDP print and suggests that the economy is still running hot despite tightening financial conditions.
  • Growing disinflationary pressures and progress towards the Fed's 2% target take further tightening off the table, keeping the USD bulls on the defensive.
  • The current market pricing indicates an even chance of easing at the March FOMC meeting and a roughly 90% probability of an interest rate cut in May.
  • Investors this week will also confront the release of important US macro data scheduled at the start of a new month, including the Nonfarm Payrolls (NFP) on Friday.

Technical Analysis: USD/JPY remains confined in a familiar range, just above 100-day SMA pivotal point

From a technical perspective, last week's failure to find bearish acceptance below the 100-day Simple Moving Average (SMA) and the subsequent move-up support prospects for additional gains. Moreover, oscillators on the daily chart are holding comfortably in the positive territory and are still far from being in the overbought zone, validating the bullish outlook for the USD/JPY pair. Bulls, however, might wait for some follow-through buying beyond the multi-week top, around the 148.80 region, before positioning for a further near-term appreciating move towards the 149.30-149.35 intermediate hurdle en route to the 150.00 psychological mark.

On the flip side, the 100-day SMA, around the 147.55 region, is likely to act to protect the immediate downside. Any further slide is likely to attract some buyers near the 147.00 round figure, which should help limit the downside for the USD/JPY pair near the 146.45 area or last week's swing low. A convincing break below the latter might shift the near-term bias in favour of bearish traders and drag spot prices to the 146.10-146.00 horizontal support. The downward trajectory could extend further towards the 145.30-145.25 area before the pair eventually drops to the 145.00 psychological mark.

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   -0.04% -0.07% -0.05% -0.24% -0.06% -0.24% -0.12%
EUR 0.04%   -0.02% -0.01% -0.19% 0.00% -0.20% -0.08%
GBP 0.05% 0.02%   0.00% -0.18% 0.02% -0.19% -0.06%
CAD 0.05% 0.00% -0.02%   -0.18% 0.01% -0.19% -0.06%
AUD 0.24% 0.19% 0.17% 0.18%   0.19% -0.01% 0.12%
JPY 0.05% 0.01% 0.12% -0.01% -0.20%   -0.22% -0.07%
NZD 0.24% 0.21% 0.18% 0.18% 0.00% 0.19%   0.12%
CHF 0.11% 0.07% 0.05% 0.07% -0.12% 0.06% -0.12%  

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 Fed Interest Rate Decision

The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).

Read more.

Next release: 01/31/2024 19:00:00 GMT

Frequency: Irregular

Source: Federal Reserve

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