Japanese Yen hangs near weekly low, bears seem non-committed amid intervention risks

■  The Japanese Yen remains on the defensive amid the BoJ policy uncertainty.

■  The flash Japan PMIs do little to impress the JPY bulls or lend any support.

■  Intervention fears help limit deeper losses amid subdued USD price action.

The Japanese Yen (JPY) remains on the defensive against its American counterpart for the second straight day on Thursday and hovers near the weekly low during the Asian session, though lacks follow-through selling. The Japanese economy unexpectedly contracted for the second straight quarter during the October-December period and confirmed a technical recession. This now seems to have dashed hopes for an imminent shift in the Bank of Japan's (BoJ) policy shift in the coming months. Apart from this, the disappointing release of the flash Japan Manufacturing PMI for February turns out to be a key factor undermining the domestic currency and acts as a tailwind for the USD/JPY pair.

That said, fears that the recent weakness below the 150.00 psychological mark might prompt some intervention from Japanese authorities hold back traders from placing aggressive bearish bets around the JPY. Furthermore, the lack of any meaningful buying around the US Dollar (USD), despite hawkish-sounding FOMC meeting minutes released on Wednesday, contributes to capping the upside for the USD/JPY pair. Moving ahead, traders now look to the US economic docket – featuring the usual Weekly Initial Jobless Claims, the flash PMI prints and Existing Home Sales data. This, along with Federal Reserve Governor Philip Jefferson's speech, might provide some impetus.

Daily Digest Market Movers: Japanese Yen is undermined by divergent BoJ-Fed policy expectations

A recession in Japan fuelled uncertainty about the likely timing of when the Bank of Japan will exit the negative interest rates policy and continues to undermine the Japanese Yen.

A private business survey released this Thursday showed that factory activity in Japan shrank for the ninth consecutive month in February due to a sharp reduction in new orders.

The au Jibun Bank flash Japan Manufacturing PMI declined to 47.2 in February from 48.0 previous and the gauge for the services sector fell from 53.1 to 52.5 for the current month.

The Composite PMI, which combines both manufacturing and services sectors, came in at 50.3 in February, down from the 51.5  previous and suggesting that the overall business activity stagnated.

The report added that the slight improvement seen in January evaporated in February and that firms were the least upbeat since January 2023, reflecting reduced optimism with regard to future output.

Japan's Ministry of Finance and the BoJ recently warned that they’re watching the exchange rate closely and are willing to intervene in the market to stem any further JPY weakness.

The US Dollar struggles to attract any meaningful buyers despite the fact that the January FOMC meeting minutes revealed that officials were concerned about the risks of cutting rates too soon.

Policymakers agreed that they needed greater confidence in falling inflation before considering cutting rates, reinforcing bets that the Federal Reserve would keep rates higher for longer.

Traders now expect that the Fed will begin cutting rates in June, which, along with a weaker 20-year bond auction, pushed the US Treasury bond yields higher across the board on Wednesday.

The yield on the benchmark 10-year US government bond advanced to its highest level since November 30, which favours the USD bulls and lends additional support to the currency pair.

Technical Analysis: USD/JPY bulls have the upper hand, move beyond the monthly peak awaited

From a technical perspective, the range-bound price action witnessed over the past week or so constitutes the formation of a rectangle on short-term charts. Against the backdrop of the recent breakout through the 148.70-148.80 horizontal barrier, this might still be categorized as a bullish consolidation phase. Moreover, oscillators on the daily chart are holding in the positive territory and are still away from the overbought zone, validating the constructive outlook for the USD/JPY pair. It, however, will still be prudent to wait for some follow-through buying beyond the 150.85-150.90 region, or a multi-month top set last week, before positioning for any further gains. Spot prices might then climb to the 151.45 intermediate hurdle en route to the 152.00 neighbourhood, or a multi-decade peak set in October 2022 and retested in November 2023.

On the flip side, the 150.00 psychological mark now seems to protect the immediate downside ahead of the weekly trough, around the 149.70-149.65 region. Any further weakness could attract some buyers near the 149.25-149.20 area. This is followed by the 149.00 round figure and the 148.80-148.70 resistance-turned-support, which if broken decisively will suggest that the USD/JPY pair has formed a near-term top and set the stage for some meaningful corrective decline. The subsequent downfall has the potential to drag spot prices to the 148.35-148.30 region en route to the 148.00 mark and the 100-day Simple Moving Average (SMA) support near the 147.70 zone.