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Japanese Yen remains vulnerable near multi-decade low against USD

  • 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) struggles to capitalize on a modest uptick against its American counterpart during the Asian session on Tuesday and remains well within striking distance of a multi-decade low touched last week. Japanese government officials continued with their jawboning to defend the domestic currency, which, along with the risk-off impulse, turned out to be key factors offering some support to the safe-haven JPY. That said, the Bank of Japan’s (BoJ) dovish outlook, saying that monetary policy will remain easy for some time, holds back the JPY bulls from placing aggressive bets and keeps a lid on any meaningful upside.

The US Dollar (USD), on the other hand, stands tall near its highest level since February 2024 touched in the aftermath of the upbeat US data on Monday. In fact, the Institute for Supply Management (ISM) reported that the US manufacturing sector registered growth in March for the first time since September 2022. This overshadows the US PCE Price Index on Friday, which indicated a moderate rise in inflation during February, and forces investors to trim their bets for a June rate cut by the Federal Reserve (Fed). This acts as a tailwind for the buck and suggests that the path of least resistance for the USD/JPY pair is to the upside.

Daily Digest Market Movers: Japanese Yen bulls remain on the sidelines despite intervention warnings and risk-off 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 seems poised to challenge multi-decade high near 152.00 and appreciate further

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.

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.