Japanese Yen weakens after BoJ Governor Ueda’s comments, focus remains on US CPI
- The Japanese Yen weakens across the board in reaction to BoJ Governor Ueda’s dovish remarks.
- Bets for an imminent shift in the BoJ’s policy stance should limit any further depreciating move.
- Traders might also prefer to wait on the sidelines ahead of the US consumer inflation figures.
The Japanese Yen (JPY) comes under heavy selling pressure during the Asian session on Tuesday and for now, seems to have snapped a five-day winning streak to its highest level since early February touched last week. Comments by Japan’s Finance Minister suggest that now is not the time for the Bank of Japan (BoJ) to tighten its monetary policy. Moreover, BoJ Governor Kazuo Ueda said there was some weakness seen in recent data, which, along with a generally positive tone around the US equity futures, is seen undermining the JPY.
Investors, however, seem convinced that the BoJ will exit the negative interest rates regime amid hopes that another substantial pay hike in Japan will fuel consumer spending and demand-driven inflation. Adding to this, a rise in Tokyo CPI last week, an upward revision of the fourth quarter GDP print on Monday and the higher-than-expected Producer Price Index (PPI) support prospects for an imminent shift in the BoJ’s policy stance. This, in turn, might hold back the JPY bears from placing aggressive bets amid subdued US Dollar (USD) price action.
Investors might also prefer to wait on the sidelines ahead of the release of the latest US consumer inflation figures, due later during the early North American session. The crucial US CPI report will play a key role in influencing market expectations about the likely timing when the Federal Reserve (Fed) will begin cutting interest rates. This, in turn, will drive the USD demand in the near term and provide a fresh directional impetus to the USD/JPY pair.
Daily Digest Market Movers: Japanese Yen loses traction after BoJ Governor Ueda’s comments
- Japan’s Finance Minister Shunichi Suzuki said that positive developments are seen in Japan’s economy, though a stage has not been reached where Japan can avoid falling back into deflation.
- Bank of Japan Governor Kazuo Ueda noted that the focus is on whether a positive wage-inflation cycle is kicking off, in judging whether sustained, stable achievement of the price target is coming into sight.
- Investors, however, seem convinced that the BoJ might end the negative interest rates as early as the March 18-19 meeting, which might continue to act as a tailwind for the Japanese Yen.
- Inflation in Tokyo moved back above the BoJ’s 2% target in February and an upward revision of the Q4 GDP print suggested that Japan’s economy avoided a technical recession.
- Data released this Tuesday showed that the Producer Price Index in Japan rose 0.2% MoM in February vs. a flat reading last month and the yearly rate climbed from 0.2% to 0.6%.
- Adding to this, the ongoing annual wage negotiations is expected to yield bumper pay hikes for the second straight year, which should allow the BoJ to pivot away from its ultra-dovish stance.
- The US Dollar continues with its struggle to attract any meaningful buyers amid growing acceptance that the Federal Reserve will start easing its monetary policy in the coming months.
- The bets were reaffirmed by the mixed US monthly jobs report on Friday, which showed a spike in the unemployment rate to a two-year high and kept the door open for a June rate cut.
- The yield on the benchmark 10-year US government bond touched a five-week low on Monday and languishes near the 4.0% mark, which further keeps the USD bulls on the defensive.
- Traders now look to the US consumer inflation figures for cues about the likely timing and the pace of the Fed’s rate-cutting cycle before placing fresh directional bets around the USD/JPY pair.
- The headline CPI is anticipated to edge higher to 0.4% in February and the yearly rate is expected to hold steady at 3.1%, while the Core CPI is seen easing to the 3.7% YoY rate from 3.9% previous.
Technical Analysis: USD/JPY might confront resistance near 100-day SMA , around mid-147.00s
From a technical perspective, the USD/JPY pair has been showing some resilience below the 38.2% Fibonacci retracement level of the December-February rally, warranting some caution for bearish traders. That said, the recent breakdown through the 100-day Simple Moving Average (SMA), the formation of a double-top pattern ahead of the 152.00 mark and bearish oscillators suggest that the path of least resistance for spot prices is to the downside.
Hence, any meaningful recovery beyond the 147.00 mark is likely to confront stiff resistance and remain capped near the 100-day SMA support breakpoint, near mid-147.00s. A sustained strength beyond, however, could lift the USD/JPY pair beyond the 148.00 mark, towards testing the next relevant hurdle near the 148.65-148.70 region. The momentum could extend further towards the 149.00 mark en route to the 149.25 horizontal support-turned-resistance.
On the flip side, bears need to wait for acceptance below the 38.2% Fibo. level before placing fresh bets. Some follow-through selling below the 200-day SMA, currently pegged near the 146.30-146.25 region, will mark a fresh breakdown and make the USD/JPY pair vulnerable. The subsequent downfall has the potential to drag spot prices below the 146.00 round-figure mark, towards the 50% Fibo. level, around the 145.60 zone.