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Japanese Yen advances to over two-week high against USD ahead of US NFP

  • The Japanese Yen strengthened for the second straight day against the USD on Friday.
  • The risk-off mood, along with intervention fears, boosts demand for the safe-haven JPY.
  • The Fed rate-cut uncertainty undermines the USD and contributes to the USD/JPY’s fall.
  • Traders now look to the release of the US jobs data (NFP) for some meaningful impetus.

The Japanese Yen (JPY) moves higher against its American counterpart for the second straight day on Friday and jumps to over a two-week high during the Asian session. Concerns that the Israel-Hamas war may spread to include Iran and spark a wider conflict in the Middle East, along with hawkish remarks from Federal Reserve (Fed) officials, temper investors’ appetite for riskier assets. This led to the overnight slump in the US equity markets and drove some haven flows towards the JPY. 

Meanwhile, investors remain on high alert amid the possibility of intervention by Japanese authorities to prop up the domestic currency. Furthermore, the Bank of Japan Governor Kazuo Ueda signaled a chance of a rate hike if the JPY moves affect inflation and wages, which turns out to be another factor underpinning the JPY. The US Dollar (USD), on the other hand, struggles to capitalize on the overnight bounce from a two-week low and contributes to the offered tone surrounding the USD/JPY pair. 

It, however, remains to be seen if the JPY bulls can build on the momentum or opt to wait on the sidelines ahead of the release of the crucial US monthly employment details later during the North American session. The popularly known Nonfarm Payrolls (NFP) report will be looked upon for cues about the Fed’s interest rate-cut path. This, in turn, will play a key role in influencing the near-term USD price dynamics and determining the next leg of a directional move for the USD/JPY pair. 

Daily Digest Market Movers: Japanese Yen gets a strong boost from rising geopolitical risks, hawkish BoJ signals

  • Iran has vowed to retaliate against the Israeli attack on its embassy in Syria, raising the risk of a further escalation of geopolitical tensions in the Middle East and boosting the safe-haven Japanese Yen. 
  • Bank of Japan Governor Kazuo Ueda reportedly said on Friday that the central bank could respond with monetary policy if FX moves have an impact on the wage-inflation cycle in a way that is hard to ignore.
  • Ueda added that the chance of sustainably, stably achieving BoJ’s 2% inflation target is in sight and is likely to keep heightening as this year’s pay raises in annual wage negotiations could push up prices.
  • Former top Japanese currency official Tatsuo Yamazaki said on Thursday that authorities will likely intervene in the currency market if the JPY breaks out of the range and weakens beyond 152 per dollar.
  • Japan’s Finance Minister Shunichi Suzuki reiterated that he is closely watching foreign exchange moves with a high sense of urgency and won’t rule out any options to deal with excessive FX volatility. 
  • Data released earlier today showed that Japanese household spending fell 0.5% in February from a year earlier, down for the 12th straight month, though better than estimates for a 3.0% decline.
  • The US Department of Labor reported on Thursday that the number of Americans applying for unemployment insurance increased to 221K in the week ending March 30 against 214K expected. 
  • This pointed to signs of cooling in the labor market and reinforced market expectations that the Federal Reserve will start cutting interest rates in June, dragging the US Dollar to a two-week low. 
  • Meanwhile, Minneapolis Fed President Neel Kashkari said that he penciled in two interest rate cuts this year and that rate cuts might not be required if inflation continues to move sideways.
  • Adding to this, Richmond Fed President Thomas Barkin noted that he was open to interest rate cuts once it is clear progress on inflation will be sustained and applied more broadly in the economy.
  • The hawkish outlook keeps the US Treasury bond yields elevated, which allowed the USD to stage a late recovery, though the momentum faded rather quickly during the Asian session on Friday.
  • Investors now look forward to the closely-watched US monthly jobs data, popularly known as the Nonfarm Payrolls (NFP) report, for cues about the Fed’s rate cut path and some meaningful impetus.

Technical Analysis: USD/JPY seems vulnerable below 151.00, short-term trading range breakdown comes into play

From a technical perspective, a convincing break and acceptance below the 151.00 mark could be seen as a breakdown through a short-term trading range. That said, oscillators on the daily chart – despite losing traction – are still holding in positive territory. Hence, any subsequent slide is more likely to find decent support near the 150.25 region. This is closely followed by the 150.00 psychological mark, which, if broken decisively, will be seen as a fresh trigger for bearish traders and drag the USD/JPY pair towards the 149.35-149.30 region en route to the 149.00 mark.

On the flip side, the 151.30-151.35 zone now seems to act as an immediate hurdle ahead of the 151.70 area and the multi-decade high, near the 152.00 mark. The latter represents a possible intervention level and should act as a strong near-term barrier. A sustained strength beyond, however, might trigger a fresh bout of a short-covering move and lift the USD/JPY pair towards the 153.00 round figure.

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.