Japanese Yen trades above multi-decade low against USD, not out of the woods yet

FXStreet
Updated Apr 12, 2024 03:18
Mitrade

■The Japanese Yen ticks higher amid intervention warnings, albeit lacking bullish conviction.


The divergent Fed-BoJ policy expectations keep a lid on any meaningful JPY appreciation.


USD/JPY seems poised to register strong gains and end in the green for the fifth straight week.


The Japanese Yen (JPY) is seen oscillating in a narrow trading band against its American counterpart during the Asian session on Friday and consolidating this week's heavy losses to the lowest level since 1990. The Bank of Japan (BoJ) has offered few cues on when it will increase interest rates further, while the markets are now betting that the Federal Reserve (Fed) will not cut interest rates at least before the September policy meeting. This, in turn, suggests that the large difference in rates between the US and Japan will stay for some time, which, along with a stable performance around the equity markets, continues to undermine the safe-haven JPY.


The US Dollar (USD), on the other hand, holds steady near the YTD peak in the wake of expectations that the Fed will keep rates higher for longer on the back of still-sticky inflation. This turns out to be another factor acting as a tailwind for the USD/JPY pair, though bulls seem reluctant to place aggressive bets amid the recent verbal warnings from Japanese officials that they would intervene in the markets to stem any further JPY weakness. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the currency pair is to the upside and any meaningful corrective decline is more likely to be seen as a buying opportunity.


Daily Digest Market Movers: Japanese Yen struggles to register any meaningful recovery amid the BoJ’s dovish outlook


The Japanese Yen continues to be weighed down by the Bank of Japan's cautious approach and uncertain outlook for future rate hikes, which, along with a bullish US Dollar, lifted the USD/JPY pair to a fresh 34-year peak on Thursday.


The USD climbed to its highest level since November 14 as investors pushed back the expected timing of the first interest rate cut by the Fed to September from June following the release of hot US consumer inflation figures on Wednesday.


Investors also pared their bets for the number of rate cuts of 25 basis points (bps) this year to fewer than two, or roughly 42 bps, from about three or four a few weeks ago in the wake of hawkish comments by several Fed officials.


Richmond Fed President Thomas Barkin said on Thursday that the latest data did not increase his confidence that disinflation is spreading in the economy and that the central bank is not yet where it wants to be on inflation.


Furthermore, New York Fed President John Williams noted that inflation setbacks are not a surprise and that the central bank does not need to change policy in the very near term, though eventually it will need to cut rates.


The yield on the rate-sensitive two-year and the benchmark 10-year US government bonds held steady near a five-month peak after data on Thursday showed that the US Producer Price Index (PPI) rose by a modest 0.2% in March.


The recent jawboning from Japanese authorities, showing readiness to intervene in the markets to address any excessive falls in the domestic currency, and persistent geopolitical tensions lend some support to the safe-haven JPY.


Japan's Finance Minister Shunichi Suzuki reiterated on Friday that he will closely watch FX moves with a high sense of urgency as a weak JPY could push up import prices and have a negative impact on consumers and firms.


The USD/JPY pair remains on track to register strong weekly gains, up for the fifth straight week, as market participants now look to the release of the Preliminary Michigan Consumer Sentiment Index for short-term trading impetus.


Technical Analysis: USD/JPY needs to consolidate before the next leg up, 152.00 resistance-turned-support holds the key for bulls


From a technical perspective, the post-US CPI breakout through a two-week-old trading range resistance near the 152.00 mark favors bullish traders. That said, the Relative Strength Index (RSI) on the daily chart – though has eased from higher levels – is hovering near overbought territory. This makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for any further appreciating move. In the meantime, the multi-decade high, around the 153.25-153.30 region, now seems to act as an immediate hurdle, above which the USD/JPY pair could aim to reclaim the 154.00 round figure.


On the flip side, any meaningful corrective decline below the overnight swing low, around the 152.75 zone, is more likely to attract fresh buyers and remain limited near the trading range breakout point, now turned support, near the 152.00 mark. The said handle should now act as a strong base for the USD/JPY pair, which if broken decisively might prompt some profit-taking and pave the way for a slide towards the 151.40 intermediate support en route to the 151.00 round figure. Some follow-through selling will suggest that spot prices have topped out in the near term and shift the bias in favor of bearish traders.

* The content presented above, whether from a third party or not, is considered as general advice only.  This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.

Do you find this article useful?
Related Articles
placeholder
Best Currency Pairs To Trade & Most Volatile Forex Pairs [15 Major Forex Pairs List]The foreign exchange (Forex) market stands as the world's largest and most liquid financial market, with an average daily trading volume of about $6 trillion. It offers significant potential for investors to profit through arbitrage opportunities. Though there are over 100 currency pairs traded daily worldwide, not all are actively involved in the forex market.
Author  Mitrade
The foreign exchange (Forex) market stands as the world's largest and most liquid financial market, with an average daily trading volume of about $6 trillion. It offers significant potential for investors to profit through arbitrage opportunities. Though there are over 100 currency pairs traded daily worldwide, not all are actively involved in the forex market.
placeholder
EURUSD Long-term Forecast: Can ECB Hawks Overcome the Dollar Bullishness? As one of the most traded currency pair in the forex markets, the price of EURUSD affects many traders. Check out our EURUSD long-term forecast for more information.
Author  Mitrade
As one of the most traded currency pair in the forex markets, the price of EURUSD affects many traders. Check out our EURUSD long-term forecast for more information.
placeholder
AUD/USD holds above 0.6500, eyes on RBA MinutesFriday's preliminary reading of the US S&P Global Manufacturing PMI for November could provide direction for AUD/USD.
Author  FXStreet
Friday's preliminary reading of the US S&P Global Manufacturing PMI for November could provide direction for AUD/USD.
placeholder
How will the US July retail sales impact the stock market and the US dollar?The market expects a month-on-month increase of 0.4% in retail sales, while the control group rate used to calculate GDP is expected to be 0.5%.
Author  Mitrade
The market expects a month-on-month increase of 0.4% in retail sales, while the control group rate used to calculate GDP is expected to be 0.5%.
placeholder
Japanese Yen stands tall near one-month top against USD on hawkish BoJ talksThe Japanese Yen (JPY) rallied to the highest level since early February against its American counterpart on Friday amid bets for an imminent shift in the Bank of Japan's (BoJ) policy stance.
Author  FXStreet
The Japanese Yen (JPY) rallied to the highest level since early February against its American counterpart on Friday amid bets for an imminent shift in the Bank of Japan's (BoJ) policy stance.