Japanese Yen remains heavily offered near one-and-half-month low against USD

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  • The Japanese Yen drifts lower for the third successive day amid dovish BoJ expectations.
  • Reduced bets for an early Fed rate cut lend support to the USD and the USD/JPY pair.
  • Traders now look forward to the US Retail Sales data and Fedspeak for a fresh impetus.

The Japanese Yen (JPY) prolongs its depreciating move against the US Dollar (USD) for the third straight day and plummets to its lowest level since early December during the European session on Wednesday. Against the backdrop of a devastating earthquake in central Japan, falling rates of inflation in Tokyo and weak wage data released last week ensured that the Bank of Japan (BoJ) will delay the plan to pivot away from its ultra-dovish policy stance. This, in turn, continues to undermine the JPY, which, along with some follow-through USD buying, lifts the USD/JPY pair closer to the 148.00 round figure in the last hour. 

The overnight hawkish remarks by Federal Reserve (Fed) Governor Christopher Waller forced investors to further scale back their expectations for a rate cut in March. This, in turn, remains supportive of elevated US Treasury bond yields, which result in the widening of the US-Japan rate differential and turn out to be another factor undermining the JPY. Meanwhile, geopolitical tensions and China’s economic woes continue to weigh on investors’ sentiment, albeit do little to benefit the safe-haven JPY or hinder the USD/JPY pair’s positive move beyond the 100-day Simple Moving Average (SMA). Traders now look to the US monthly Retail Sales and Industrial Production figures for some impetus later during the early North American session. 

Apart from this, scheduled speeches by influential FOMC members, along with the US bond yields, will drive the USD demand and produce short-term trading opportunities around the USD/JPY pair. The focus will then shift to Japan’s National Core CPI, due for release on Friday, which will play a key role in determining the near-term trajectory for the JPY ahead of the BoJ decision next Tuesday. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the currency pair is to the upside and supports prospects for an extension of the uptrend witnessed since the beginning of this month. 

Daily Digest Market Movers: Japanese Yen weakens further amid dovish BoJ expectations

  • The Japanese Yen continues to be weighed down by the fact that the chances for the Bank of Japan to end its negative rate policy have faded in the wake of domestic factors.
  • Against the backdrop of the New Year’s Day earthquake in Japan, falling rates of inflation in Tokyo and weaker wage data ensure that BoJ will maintain the status quo.
  • The JPY failed to gain any respite from a generally weaker tone around the equity markets and persistent geopolitical tensions stemming from the Israel-Hamas war.
  • In the latest development, the US carried out another airstrike targeting a Houthi missile facility in Yemen, noting a threat to merchant vessels and US Navy ships.
  • The US Dollar remains well supported by reduced bets for a March interest rate cut by the Federal Reserve and provides an additional boost to the USD/JPY pair.
  • Fed Governor Christopher Waller said on Tuesday that the recent data allows the central bank to consider policy rate cuts, but only if inflation continues to moderate.
  • Waller added that the Fed needs to be cautious and cannot rush into rate cuts as the economy remains in good shape, pushing the US Treasury bond yields sharply higher.
  • The yield on the benchmark 10-year US government bond holds steady above the 4.0% threshold and is seen as another factor acting as a tailwind for the Greenback.
  • The US macro data due later this Wednesday is expected to show that monthly Retail Sales grew by 0.4% in December, while Industrial Production remained flat.
  • Fed Governors Michael Barr and Michelle Bowman’s scheduled speeches during the North American session might further contribute to influencing the USD.

Technical Analysis: USD/JPY pauses near 148.00 mark, bullish potential seems intact

From a technical perspective, a sustained strength and acceptance beyond the 147.45-147.50 confluence, comprising the 100-day SMA and the 61.8% Fibonacci retracement level of the November-December downfall, could be seen as a fersh trigger for bulls. Given that oscillators on the daily chart are holding in the positive territory, the USD/JPY pair now seems poised to test the 148.50 hurdle (November 30 peak). The momentum could extend further towards the 148.80-148.85 region en route to the 149.00 mark and the 149.70-149.75 supply zone and the 150.00 psychological mark.

On the flip side, any corrective decline back below the 147.50 confluence resistance breakpoint could now be seen as a buying opportunity and remain limited near the 147.00 mark. A conivnicng break below, however, will expose the 146.10-146.00 support, which should act as a key pivotal point. Some follow-through selling will negate the positive bias and drag the USD/JPY pair to the 145.45-145.40 intermediate support, towards testing sub-145.00 levels. Spot prices could eventually drop to the 144.60 support en route to the 144.00 mark and the 200-day SMA, currently around the 143.75-143.70 area.

Japanese Yen price today

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the .

USD 0.03%0.01%-0.01%-0.01%-0.01%-0.08%0.02%
EUR-0.03% -0.03%-0.04%-0.03%-0.02%-0.09%-0.01%
GBP-0.01%0.02% -0.03%-0.02%-0.02%-0.08%0.00%
CAD0.01%0.04%0.02% 0.00%0.01%-0.07%0.01%
AUD0.01%0.01%0.02%0.00% 0.01%-0.07%0.02%
JPY-0.05%-0.01%-0.03%-0.06%-0.05% -0.12%-0.03%
NZD0.08%0.08%0.08%0.06%0.06%0.07% 0.09%
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).


What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

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.

How does broader risk sentiment impact 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.

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