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Japanese Yen remains confined in a familiar range near multi-decade low against USD

  • The Japanese Yen struggles to capitalize on the overnight modest uptick against the USD.
  • The BoJ’s dovish stance undermines the JPY, though intervention fears limit the downside.
  • Reduced bets for a June Fed rate cut should lend support to the Greenback and USD/JPY.

The Japanese Yen (JPY) edges higher against its American counterpart during the Asian session on Wednesday, albeit it lacks follow-through and remains confined in a familiar range held over the past two weeks or so. Investors remain on alert amid the possibility of intervention by Japanese authorities to prevent a destabilizing fall in the domestic currency. This, along with a generally weaker sentiment around the equity markets, turns out to be a key factor lending some support to the safe-haven JPY.

The US Dollar (USD), on the other hand, is seen consolidating the previous day’s retracement slide from a five-month top and contributes to the mildly offered tone surrounding the USD/JPY pair. Any meaningful appreciating move for the JPY, however, seems elusive in the wake of the Bank of Japan’s (BoJ) dovish language, signaling that the next rate hike will be some time away. In contrast, the markets continue trimming their bets that the Federal Reserve (Fed) will cut interest rates in June.

Expectations that the gap between US and Japanese interest rates will stay wide might further hold back the JPY bulls from placing aggressive bets, which, in turn, should help limit the downside for the USD/JPY pair. Investors now look to the US economic docket – featuring the release of the ADP report on private-sector employment and ISM Services PMI. This, along with speeches by influential FOMC members, including the Fed Chair Jerome Powell, should provide a fresh impetus later today.

Daily Digest Market Movers: Japanese Yen lacks firm near-term direction amid mixed fundamental cues

  • Japanese Finance Minister Shunichi Suzuki repeated his warning that authorities were ready to take appropriate action against excessive exchange-rate volatility and offered some support to the Japanese Yen.
  • The uncertainty over the Federal Reserve’s plans to cut interest rates, along with persistent geopolitical risks, tempers investors’ appetite for riskier assets and further benefits the JPY’s relative safe-haven status.
  • The Bank of Japan struck a dovish tone at the end of the March meeting and stopped short of offering any guidance about future policy steps, or the pace of policy normalization, which caps gains for the JPY.
  • Odds of a June Fed rate cut dip below 50% after data released this week showed that the US manufacturing sector expanded in March for the first time since September 2022 and that demand for labor remains elevated.
  • The US Bureau of Labor Statistics (BLS) reported in the Job Openings and Labor Turnover Survey (JOLTS) on Tuesday that the number of job openings on the last business day of February stood at 8.75 million.
  • A separate report by the Commerce Department’s Census Bureau showed that new orders for US-manufactured goods rebounded more than expected, by 1.4% in February following a 3.8% drop in the previous month.
  • San Francisco Fed President Mary Daly said on Tuesday that inflation is gradually decreasing, though the process is erratic and gradual, and that maintaining the status quo is the appropriate policy at present.
  • Adding to this, Cleveland Fed President Loretta Mester expects the central bank to cut rates later this year, though noted that moving rates down too soon would risk undoing the progress made on inflation.
  • This comes on the back of Fed Chair Jerome Powell’s remarks on Friday, saying that there was no need to be in a hurry to cut interest rates and raised doubts if the central bank will cut rates three times this year.
  • The yield on the benchmark 10-year US government bond advanced to a four-month high, helping the US Dollar to stall the overnight pullback from a multi-month top and acting as a tailwind for the USD/JPY pair.

Technical Analysis: USD/JPY extends its consolidative price move in a familiar range, bullish bias remains

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 against the backdrop 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, suggests that the path of least resistance for the USD/JPY pair is to the upside. That said, bulls might need a sustained breakout through the trading range resistance, around the 152.00 mark, or a multi-decade high before positioning for any further appreciating move.

On the flip side, the lower end of the aforementioned trading range, around the 151.10-151.00 area, is likely to protect the immediate downside. Some follow-through selling below the 150.85-150.80 horizontal resistance breakpoint, now turned support, 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.