Japanese Yen sticks to heavy intraday losses against USD, eyes US CPI for fresh impetus


  • The Japanese Yen weakens across the board in reaction to BoJ Governor Ueda's dovish remarks.
  • Bets for an imminent shift in the BoJ's policy stance should limit any further depreciating move. 
  • Traders might also prefer to wait on the sidelines ahead of the US consumer inflation figures.

The Japanese Yen (JPY) comes under intense selling pressure on Tuesday after the Bank of Japan (BoJ) fell short of providing any hints about exiting negative rates or scrapping the Yield Curve Control (YCC) policy. This, along with a steady performance around the equity markets, undermines the safe-haven JPY and lifts the USD/JPY pair back above mid-147.00s heading into the European session. Any further JPY depreciation, however, seems elusive amid hopes that another substantial pay hike in Japan will fuel consumer spending and demand-driven inflation, which should allow the BoJ to pivot away from its ultra-loose policy setting in the coming month.

Apart from this, subdued US Dollar (USD) price action, amid firming expectations that the Federal Reserve (Fed) will start cutting interest rates in June, might further contribute to capping the upside for the USD/JPY pair. Traders might also refrain from placing aggressive bets and look to the latest US consumer inflation figures for cues about the Fed's rate-cut path. This, in turn, will play a key role in providing some meaningful impetus to the Greenback and the currency pair ahead of the crucial BoJ monetary policy meeting next week. Nevertheless, the JPY, for now, seems to have snapped a five-day winning streak to its highest level since early February. 

Daily Digest Market Movers: Japanese Yen continues losing ground amid BoJ Governor Ueda's dovish remarks

  • The Japanese Yen weakens a bit after Japan's Finance Minister Shunichi Suzuki said that positive developments are seen in Japan's economy, though a stage has not been reached where Japan can avoid falling back into deflation.
  • Furthermore, Bank of Japan Governor Kazuo Ueda noted the central bank will seek exit from easy policy when achievement of 2% inflation is in sight, smashing hopes for a policy pivot at the upcoming meeting on March 18-19.
  • Ueda further added that the focus is on whether a positive wage-inflation cycle is kicking off, in judging whether sustained, stable achievement of the price target is coming into sight.
  • Investors, however, seem convinced that the BoJ might still exit the negative interest rates regime after the outcome of the spring wage negotiations, which might continue to act as a tailwind for the Japanese Yen.
  • Inflation in Tokyo rebounded from a 22-month low and moved back above the BoJ's 2% target in February, while an upward revision of the Q4 GDP print suggested that Japan's economy avoided a technical recession.
  • Data released this Tuesday showed that the Producer Price Index in Japan rose 0.2% MoM in February vs. a flat reading last month and the yearly rate climbed from 0.2% to 0.6%, reaffirming bets for a BoJ policy shift. 
  • Adding to this, the ongoing annual wage negotiations is expected to yield bumper pay hikes for the second straight year, which should allow the BoJ to pivot away from its ultra-dovish monetary policy settings. 
  • The US Dollar continues with its struggle to attract any meaningful buyers in the wake of growing acceptance that the Federal Reserve will start cutting interest rates at the June FOMC policy meeting. 
  • The yield on the benchmark 10-year US government bond touched a five-week low on Monday and languishes near the 4.0% mark, which further keeps the USD bulls on the defensive and might cap the USD/JPY pair.
  • Traders now look to the US consumer inflation figures for cues about the likely timing and the pace of the Fed's rate-cutting cycle before positioning for the next leg of a directional move ahead of the BoJ next week. 
  • The headline CPI is anticipated to edge higher to 0.4% in February and the yearly rate is expected to hold steady at 3.1%, while the Core CPI is seen easing to the 3.7% YoY rate from 3.9% previous.

Technical Analysis: USD/JPY flirts with the 100-day SMA support breakpoint, now turned pivotal resistance

From a technical perspective, the USD/JPY pair has been showing some resilience below the 38.2% Fibonacci retracement level of the December-February rally, warranting some caution for bearish traders. That said, the recent breakdown through the 100-day Simple Moving Average (SMA), the formation of a double-top pattern ahead of the 152.00 mark and bearish oscillators suggest that the path of least resistance for spot prices is to the downside.

Hence, any meaningful recovery beyond the 147.00 mark is likely to confront stiff resistance and remain capped near the 100-day SMA support breakpoint, near mid-147.00s. A sustained strength beyond, however, could 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 the 149.00 mark en route to the 149.25 horizontal support-turned-resistance.

On the flip side, bears need to wait for acceptance below the 38.2% Fibo. level before placing fresh bets. Some follow-through selling below the 200-day SMA, currently pegged near the 146.30-146.25 region, will mark a fresh breakdown and make the USD/JPY pair vulnerable. The subsequent downfall has the potential to drag spot prices below the 146.00 round-figure mark, towards the 50% Fibo. level, around the 145.60 zone.

Economic Indicator

United States Consumer Price Index ex Food & Energy (MoM)

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 MoM print compares the prices of goods in the reference month to the previous month.The CPI Ex Food & Energy excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. 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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