■The Japanese Yen struggles to build on the previous day’s solid recovery from a multi-decade low.
■The divergent BoJ-Fed policy expectations and a positive risk tone undermine the safe-haven JPY.
■The emergence of some USD buying provides an additional boost to the USD/JPY pair on Tuesday.
The Japanese Yen (JPY) staged a strong intraday recovery on Monday and rallied over 550 pips against its American counterpart, following an initial slump below the 160.00 psychological mark for the first time since April 1990. Traders cited intervention by Japanese authorities for the first time in 18 months as a trigger for the solid rebound in the JPY amid relatively thin liquidity due to a local public holiday. This, along with the emergence of fresh US Dollar (USD) selling, dragged the USD/JPY pair to a one-week low.
The JPY, however, started losing traction in the wake of expectations that interest rates in Japan would remain low for some time in contrast to relatively high-interest rates in the United States (US). This, along with a generally positive risk tone, which tends to undermine the safe-haven JPY, assisted the USD/JPY pair in attracting fresh buyers in the vicinity of mid-154.00s and trimming a part of its heavy intraday losses. The momentum extends through the Asian session on Tuesday and is further fueled by rather unimpressive Japanese macro data.
The focus, meanwhile, remains on the outcome of the crucial two-day FOMC policy meeting, scheduled to be announced on Wednesday. Furthermore, this week's important US macro releases, including the closely watched Nonfarm Payrolls (NFP) on Friday, will influence the USD and provide some meaningful impetus to the USD/JPY pair. In the meantime, Tuesday's US economic docket – featuring the Chicago PMI and the Conference Board's Consumer Confidence Index — will be looked upon to grab short-term trading opportunities.
Daily Digest Market Movers: Japanese Yen meets with a fresh supply amid the BoJ’s uncertain rate outlook
The Japanese Yen witnessed a dramatic intraday turnaround after touching a fresh 34-year low on Monday amid reports that Japanese authorities intervened in the market to support the domestic currency.
Japan's top currency diplomat Masato Kanda refrained from confirming if there was an intervention but said that the current developments in the currency market were “speculative, rapid and abnormal”.
The strong JPY recovery, however, lost traction in the wake of firming expectations that a significant interest-rate differential between Japan and the United States is likely to remain in place for some time.
The Bank of Japan decided to keep its key interest rate unchanged at the end of April policy meeting last Friday and said that it will continue buying government bonds in line with the guidance made in March.
The BoJ lowered its economic growth forecast for the current fiscal year 2024, while data on Monday showed that inflation in Tokyo slowed for the second month in April, raising doubts about further policy tightening.
The Federal Reserve is expected to keep rates higher for longer, and the bets were reaffirmed by Friday's release of the Personal Consumption Expenditures (PCE) Price Index, which pointed to sticky inflation.
Data released from Japan this Tuesday showed that the unemployment rate held steady at 2.6% in March as compared to the 2.5% anticipated, while Industrial Production grew by 3.8% during the reported month.
Meanwhile, Japan's Retail Sales declined by 1.2% in March and the yearly rate, though recorded a slower-than-expected rise, pointed to expansion for the 25th consecutive month, doing little to influence the JPY.
Traders now look to the US economic docket – featuring the Chicago PMI and the Conference Board's Consumer Confidence Index — for short-term opportunities ahead of the FOMC policy decision on Wednesday.
Apart from this, important US macro data scheduled at the beginning of a new month, influencing the monthly jobs data, should influence the USD price dynamics and provide a fresh impetus to the USD/JPY pair.
Technical Analysis: USD/JPY could climb further towards testing the 50% Fibo. hurdle near the 157.40 region
From a technical perspective, spot prices showed resilience below the 200-hour Simple Moving Average (SMA) on Monday. The subsequent move beyond the 38.2% Fibonacci retracement level of the overnight sharp pullback from a multi-decade top favored bullish traders. Moreover, oscillators on hourly charts have again started gaining positive traction and validate the constructive outlook for the USD/JPY pair. Hence, some follow-through strength beyond the 157.00 mark towards the 50% Fibo. level near the 157.40 region looks like a distinct possibility. The momentum could extend further towards the 158.00 round figure or the 61.8% Fibo. level, which should now act as a key pivotal point.
On the flip side, weakness back below the 156.75-156.70 area now seems to find some support near the 156.35 region ahead of the 156.00 mark. A convincing breakthrough the latter might expose the 200-hour SMA support, currently pegged near the 155.35 zone, before the USD/JPY pair weakens further below the 155.00 psychological mark and challenges the overnight swing low, around mid-154.00s.
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