- The Japanese Yen edges higher following the release of Japanese consumer inflation data.
- The uncertainty over the BoJ’s future policy steps keeps a lid on any further positive moves.
- A modest US Dollar downtick exerts some pressure, though the downside remains limited.
The Japanese Yen (JPY) witnessed a dramatic intraday turnaround on Thursday and dived closer to the YTD low touched the previous day. However, it lacked follow-through amid the uncertainty over the Bank of Japan’s (BoJ) future policy steps. In fact, the central bank indicated earlier this week that financial conditions would remain accommodative and fell short of offering any guidance about the pace of policy normalization. That said, a Bank of Japan source told the Nikkei newspaper that an early rate hike leaves room to consider rolling out another increase before the end of the year.
Moreover, data released this Friday showed that consumer inflation in Japan remains well above the BoJ’s 2% annual target. Adding to this, the positive outcome of Japan’s spring wage negotiations indicated that most firms have agreed to the trade unions’ wage rise demands, which is expected to push up inflation in the coming months and support prospects for further policy tightening by the BoJ. This, in turn, assists the JPY in attracting some dip-buying during the Asian session amid speculations that Japanese authorities will intervene in the markets to prop up the domestic currency.
The US Dollar (USD), on the other hand, ticks lower during the Asian session and erodes a part of the previous day’s move up, which, in turn, is seen as another factor that exerts downward pressure on the USD/JPY pair. Meanwhile, investors seem to have digested the Federal Reserve’s (Fed) less restrictive policy projection on Wednesday. This keeps the US Treasury bond yields elevated, which favours the USD bulls and warrants some caution before positioning for any meaningful depreciating move for the currency pair ahead of Fed Chair Jerome Powell’s scheduled speech later this Friday.
Daily Digest Market Movers: Japanese Yen struggles to lure buyers despite a rise in domestic consumer inflation
- Japan Consumer Price Index rose from the 2.2% YoY rate to 2.8% in February and remains well above the Bank of Japan’s 2% target, lending some support to the Japanese Yen on the last day of the week.
- The Core CPI, which excludes volatile fresh food prices, picked up sharply from the 2% annualized pace seen in January and rose to 2.8% during the reported month, broadly in line with market expectations.
- Meanwhile, the so-called “core core” index that strips away both fresh food and energy prices eased further from the 40-year high touched in 2023 and came in at 3.2% in February as compared to the 3.5% previous.
- This comes on top of a much-stronger-than-expected pay hike by major Japanese firms, which is expected to fuel demand-driven inflation and should allow the BoJ to tighten its monetary policy further.
- Japan’s Finance Minister Shunichi Suzuki reiterated that the government is watching FX moves with a high sense of urgency and it is important for currency exchange rates to move in a stable manner that reflects fundamentals.
- Despite the Federal Reserve’s projected three rate cuts this year, elevated US Treasury bond yields helped the US Dollar to regain positive traction on Thursday and should lend support to the USD/JPY pair.
- The US Department of Labor (DOL) reported that there were 210K Initial Jobless Claims during the week ending March 16 as compared to the previous week’s print of 212K and better than the 215K expected.
- Market participants now look forward to Fed Chair Jerome Powell’s scheduled speech later during the early North American session for some meaningful impetus and short-term trading opportunities.
Technical Analysis: USD/JPY remains close to multi-decade high set in November 2022; bullish potential intact
From a technical perspective, the overnight strong intraday rise stalled near the 151.75 zone, just ahead of the YTD peak set on Wednesday. This is followed by the multi-decade high, around the 152.00 mark touched in November 2022, which if cleared decisively, will be seen as a fresh trigger for bullish traders. The USD/JPY pair might then build on its longer-term uptrend witnessed since January 2023.
On the flip side, any meaningful corrective decline now seems to find decent support near the 151.00 mark, below which spot prices could slide back to the 150.25 region. Some follow-through selling, leading to a subsequent break through the 150.00 psychological mark, might expose the next relevant support near the 149.35-149.30 region. The USD/JPY pair could eventually drop to the 149.00 round-figure mark.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.
The BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
