Japanese Yen adds to post-BoJ losses, plummets to fresh YTD low against USD

■  The Japanese Yen dives to a multi-month low in the wake of the BoJ’s dovish hike on Tuesday.

■  Hawkish Fed expectations underpin the USD and lend additional support to the USD/JPY pair.

■  Intervention fears might cap the major ahead of the crucial FOMC monetary policy decision.

The Japanese Yen (JPY) prolongs its downtrend against its American counterpart for the seventh straight day and drops to over a four-month low during the Asian session on Wednesday. The Bank of Japan (BoJ) raised the short-term interest rates for the first time since 2007 and scrapped its complex Yield Curve Control (YCC) policy at the end of the March meeting on Tuesday. Despite the historic move, the central bank indicated that financial conditions would remain accommodative and stopped short of offering any guidance about future policy steps, or the pace of policy normalization. This, along with the prevalent risk-on mood, continues to undermine the safe-haven JPY.

The US Dollar (USD), on the other hand, stands tall near a two-week high touched on Tuesday in the wake of expectations that the Federal Reserve (Fed) will reiterate its higher-for-longer interest rates narrative on the back of sticky inflation. The hawkish outlook remains supportive of elevated US Treasury bond yields, which results in the widening of the US-Japan rate differential and exerts additional downward pressure on the JPY. This, in turn, pushes the USD/JPY pair beyond the 151.00 round figure and supports prospects for a further appreciating move. Bulls, however, might wait for the FOMC policy decision for cues about the rate-cut path and before placing fresh bets.

Daily Digest Market Movers: Japanese Yen adds to the post-BoJ losses as traders look to FOMC

The lack of forward guidance for further tightening disappointed hawkish Bank of Japan traders and continues to weigh heavily on the Japanese Yen, dragging it to the lowest level since November 2023 on Wednesday.

The BoJ, in a historic move on Tuesday, decided to end its negative interest rate policy and announced its first rate increase since 2007, though pledged to keep monetary conditions accommodative for the time being.

The BoJ indicated that it will reduce purchases of commercial paper and corporate bonds, though will continue to purchase Japanese government bonds, and step in when necessary, if yields run too high and too fast.

The robust US consumer and consumer inflation figures fuelled speculations that the Federal Reserve could modify its forward guidance to two 25 basis points rate cuts in 2024 instead of the three projected previously.

Hence, the focus will remain glued to the outcome of the highly-anticipated two-day FOMC meeting and the updated economic projections, including the so-called "dot plot" for fresh cues about the future rate-cut path.

In the meantime, hawkish Fed expectations remain supportive of elevated US Treasury bond yields and favour the USD bulls, though intervention fears could limit losses for the JPY and cap the upside for the currency pair.

Technical Analysis: USD/JPY could aim to retest a multi-decade top, around the 152.00 mark

From a technical perspective, the recent solid bounce from the vicinity of the very important 200-day Simple Moving Average (SMA) and a subsequent move beyond the 151.00 mark could be seen as a fresh trigger for bullish traders. Adding to this, oscillators on the daily chart have been gaining positive traction and are still far from being in the overbought territory, validating the near-term constructive setup for the USD/JPY pair. Hence, some follow-through strength back towards the 152.00 neighbourhood, or a multi-decade peak touched in October 2022, looks like a distinct possibility.

On the flip side, any corrective decline now seems to attract fresh buyers and is more likely to remain limited near the 150.80 strong horizontal resistance breakpoint. A sustained break below, however, might prompt some technical selling and drag the USD/JPY pair back towards the 150.00 psychological mark. The next relevant support is pegged near the 149.50 area, which if broken decisively might shift the bias in favour of bearish traders and pave the way for deeper losses.