Japanese Yen slides back closer to multi-decade low against USD, bears retain control
- The Japanese Yen drifts lower for the second straight day and is pressured by a combination of factors.
- The BoJ’s cautious stance, softer domestic data and a positive risk tone undermine the safe-haven JPY.
- The upbeat US NFP-inspired USD strength lifts USD/JPY back closer to the multi-decade high.
The Japanese Yen (JPY) witnessed an intraday turnaround from over a two-week high touched against its American counterpart on Friday and finally settled near the lower end of its daily trading range. The Bank of Japan's (BoJ) dovish language, signaling that the next rate hike will be some time away, along with a positive risk tone, turned out to be key factors undermining the safe-haven JPY. The selling bias remains unabated during the Asian session on Monday following the release of softer domestic data, showing that real wages in Japan fell in February for the 23rd consecutive month.
Apart from this, a generally positive tone around the equity markets dents demand for the safe-haven JPY. This, along with the emergence of some US Dollar (USD) buying, bolstered by Friday's upbeat US monthly jobs data, pushes the USD/JPY pair back closer to a multi-decade high touched last week. The blowout Nonfarm Payrolls (NFP) report suggested the Federal Reserve (Fed) may delay cutting interest rates and forced investors to scale back their expectations for three rate cuts in 2024. This remains supportive of elevated US Treasury bond yields and acts as a tailwind for the buck.
The JPY bulls, meanwhile, fail to gain any respite from the recent jawboning from Japanese authorities, showing readiness to intervene in the markets to prop up the domestic currency. This suggests that the path of least resistance for the USD/JPY pair is to the upside amid expectations that the gap between US and Japanese interest rates will stay wide. Market participants now look to the release of the latest US consumer inflation figures and the FOMC meeting minutes on Wednesday for clues about the Fed's rate-cut path. This will influence the USD and provide a fresh impetus to the currency pair.
Daily Digest Market Movers: Japanese Yen is weighed down by a combination of factors
- The Bank of Japan's (BoJ) cautious approach towards further policy tightening, along with softer wage data from Japan, dragged the Japanese Yen lower for the second straight day on Monday.
- The Bank of Japan struck a dovish tone at the end of the March monetary policy meeting and stopped short of offering any guidance about future steps, or the pace of policy normalization.
- The labor ministry reported that Japanese workers' inflation-adjusted real wages fell by 1.3% in February from a year earlier as compared to the previous month's revised decline of 1.1%.
- Data published by the Ministry of Finance showed Japan's current account rose to 2.64 trillion Yen in February, the highest since October last year, though was below consensus estimates.
- Reports that progress has been made in Gaza ceasefire talks boost investors' confidence and turn out to be another factor that undermines demand for the safe-haven JPY.
- Japanese government officials continued with their jawboning to defend the domestic currency, albeit doing little to impress the JPY bulls or hinder the USD/JPY pair's move up.
- The US Dollar draws support from the upbeat US jobs data released on Friday, which forced investors to trim their bets for a June interest rate cut by the Federal Reserve.
- The popularly known NFP report showed that the US economy added 303K jobs in March and the unemployment rate fell to 3.8% from 3.9% in the previous month.
- The data, meanwhile, gives the Fed more reason to stay patient and changed the odds of rate cuts this year from three to two, which pushes the US Treasury bond yields higher.
- The market focus now shifts to the release of the US consumer inflation figures for March, due on Wednesday, which will be followed by the FOMC meeting minutes.
- Investors will look for more cues on potential Fed rate cuts in 2024 before positioning for the next leg of a directional move for the buck and the USD/JPY pair.
Technical Analysis: USD/JPY bulls need to wait for sustained strength beyond the 152.00 mark
From a technical perspective, bulls might still wait for sustained strength and acceptance above the 152.00 mark before placing fresh bets. Given that oscillators on the daily chart are holding in the positive territory and are still away from being in the overbought zone, the USD/JPY pair might then resume its uptrend witnessed over the past month or so from the March trough.
On the flip side, the 151.30 horizontal zone now seems to protect the immediate downside ahead of the 151.00 mark. Some follow-through selling will expose Friday's swing low, around the 150.30 region. This is followed by the 150.00 psychological mark, which if broken decisively will shift the near-term bias in favor of bearish traders. The USD/JPY pair might then slide to the 149.35-149.30 region en route 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.