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Japanese Yen remains close to multi-decade low against USD, bears not ready to give up yet

  • The Japanese Yen fails to lure buyers despite intervention fears and the risk-off impulse.
  • The BoJ’s cautious outlook continues to undermine the JPY and lend support to USD/JPY.
  • Reduced bets for a June Fed rate cut lift the USD to a multi-week top and act as a tailwind.

The Japanese Yen (JPY) trades with a negative bias against its American counterpart for the second successive day on Tuesday, with bears now eyeing to challenge a multi-decade low touched last week. The Bank of Japan (BoJ) struck a dovish tone at the end of the March meeting and stopped short of offering any guidance about the pace of policy normalization, or future policy steps. This, in turn, is seen undermining the JPY, which, along with some follow-through US Dollar (USD) buying, assists the USD/JPY pair to rebound around 25-30 pips from the Asian session low. 

Investors, meanwhile, remain sceptic that Japanese authorities will intervene in the markets to stem any further JPY weakness. This, along with the prevalent cautious mood across the global equity markets, is holding back bearish traders from placing aggressive bets around the safe-haven JPY and capping the upside for the USD/JPY pair. Moving ahead, Tuesday’s US economic docket – featuring JOLTS Job Openings and Factory Orders – and speeches by a slew of influential FOMC members will now be looked upon to grab short-term trading opportunities around the major.

Daily Digest Market Movers: Japanese Yen remains on the back foot despite intervention fears and cautious market mood

  • Speculations that Japanese authorities will intervene in the markets to prop up the domestic currency lend some support to the Japanese Yen, though the Bank of Japan’s cautious outlook keeps a lid on any meaningful gains.
  • Japan’s Finance Minister Shunichi Suzuki reiterated his warning on the recent rapid JPY moves and said on Monday that he would respond appropriately and would not rule out options against excessive volatility.
  • Reports that Israeli warplanes bombed Iran’s embassy in Syria raise the risk of a further escalation of geopolitical tensions in the Middle East, tempering investors’ appetite for riskier assets and benefitting the safe-haven JPY.
  • Investors lowered their bets that the Federal Reserve will cut rates in June after the Institute for Supply Management reported that the US manufacturing sector expanded in March to end 16 straight months of contraction.
  • The yield on the rate-sensitive two-year and the benchmark 10-year US government bonds climbed to a two-week peak after the upbeat data, pushing the US Dollar to a seven-week top and lending support to the USD/JPY pair.
  • Traders now look to the US economic docket – featuring the release of JOLTS Job Openings and Factory Orders – and speeches by influential FOMC members for some meaningful impetus later during the North American session.

Technical Analysis: USD/JPY bulls need to wait for move beyond multi-decade top near 152.00 before placing fresh bets

From a technical perspective, the range-bound price action witnessed over the past two weeks or so might still be categorized as a bullish consolidation phase on the back of a strong rally from the March swing low. Moreover, oscillators on the daily chart are holding in the positive territory and are still far from being in the overbought zone. This, in turn, validates the near-term positive outlook for the USD/JPY pair. That said, it will still be prudent to wait for a move beyond a multi-decade high, around the 152.00 mark set last week, before positioning for any further appreciating move.

On the flip side, a slide back towards the 151.00 round figure might now be seen as a buying opportunity and remain limited near the 150.85-150.80 horizontal resistance breakpoint. Some follow-through selling, however, could expose the next relevant support near the 150.25 area. This is closely followed by the 150.00 psychological mark, which, if broken decisively, might turn the USD/JPY pair vulnerable to accelerate the corrective decline further towards the 149.35-149.30 region before eventually dropping to the 149.00 mark.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.