- The Japanese Yen gains positive traction against the USD for the second straight day on Tuesday.
- Tokyo inflation report lifts expectations for an eventual hawkish BoJ pivot and boosts the JPY.
- Elevated US bond yields underpin the USD and help limit the downside for the USD/JPY pair.
The Japanese Yen (JPY) strengthened for the second straight day against its American counterpart after data showed that inflation in Tokyo – Japan’s capital city – remained above the Bank of Japan’s (BoJ) 2% target. This fueled expectations that the central bank will start phasing out its massive stimulus sometime this year and boost the domestic currency. That said, government stimulus measures in the wake of a devastating New Year’s Day earthquake in Japan might have already delayed the BoJ’s plan to pivot away from its ultra-dovish stance. This, along with a stable performance around the equity markets, keeps a lid on further gains for the safe-haven JPY.
The US Dollar (USD), on the other hand, draws support from elevated US Treasury bond yields and reduced bets for a more aggressive policy easing by the Federal Reserve (Fed). This, in turn, assists the USD/JPY pair to attract some buyers in the vicinity of the very important 200-day Simple Moving Average (SMA) and rebound around 50 pips from the daily low. Spot prices climb back closer to the 144.00 mark heading into the European session, though any meaningful upside seems elusive in the wake of the uncertainty over the Fed’s rate-cut path.
Traders might also refrain from placing aggressive directional bets and prefer to wait for the release of the latest US consumer inflation figures on Thursday. The crucial US CPI report might provide some clarity over the timing of when the Fed will begin easing its monetary policy, which, in turn, will play a key role in influencing the USD price dynamics and determining the near-term trajectory for the USD/JPY pair. In the meantime, a scheduled speech by Fed Governor Michael Barr might provide some impetus later during the US session on Tuesday.
Daily Digest Market Movers: Japanese Yen loses traction amid bets for BoJ inaction in January
- The Japanese Yen attracts follow-through buying during the Asian session on Tuesday, though the fundamental backdrop warrants some caution for aggressive bullish traders.
- Inflation in Japan’s capital fell as expected, with Tokyo core Consumer Price Index (CPI) inflation, which excludes volatile fresh food prices, rising 2.1% YoY in December.
- A core reading that excludes both fresh food, and fuel prices, and is closely watched by the Bank of Japan as a measure of underlying inflation, eased from 3.6% to 3.5%.
- Adding to this, the headline Tokyo CPI inflation fell from 2.6% in the prior month to an annualized 2.4% in December and is now within spitting distance of the BoJ’s annual target.
- This comes on top of a deadly earthquake in Japan and dampens hopes for an imminent shift in the BoJ’s dovish stance at the January 22-23 monetary policy meeting.
- Japan’s Finance Minister Suzuki Shunichi announces a 4.74 billion Yen spending and is considering expanding reserve funds of FY-24/25 budget plans for Noto Peninsula earthquake.
- The US Dollar remains on the defensive in the wake of last week’s mixed US economic data and bets that the Federal Reserve will start easing its monetary policy soon.
- The New York Fed said in a report on Monday that US consumers’ projection of inflation over the short run fell to the lowest level in nearly three years in December.
- The latest survey showed that inflation is expected to be at 3% one year from now, or the lowest reading since January 2021, as against a projection of 3.4% in November.
- Investors, however, have been paring bets for early interest rate cuts by the Fed, which remains supportive of elevated US bond yields and should act as a tailwind for the USD.
Technical Analysis: USD/JPY bounces off daily low, could face stiff resistance near mid-144.00s
From a technical perspective, the intraday downfall drags the USD/JPY pair below the 100-hour Simple Moving Average (SMA). A subsequent break through the 38.2% Fibonacci retracement level of the recent strong recovery from a multi-month low touched in December might have already set the stage for further losses. With oscillators on hourly/daily charts holding in the negative territory, spot prices seem vulnerable to slide further towards testing the very important 200-day SMA, currently around the 143.25 region, en route to the 143.00 mark, or the 50% Fibo. level.
On the flip side, the 144.00 round figure now seems to act as an immediate resistance ahead of the 144.25-144.30 region. A sustained strength beyond the latter could trigger a short-covering rally and lift the USD/JPY pair to the 145.00 psychological mark. Some follow-through buying might shift the bias back in favour of bullish traders and allow spot prices to make a fresh attempt to conquer the 146.00 mark with some intermediate barrier near mid-145.00s.
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 US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.08% | -0.11% | -0.01% | -0.13% | -0.47% | -0.11% | -0.15% | |
| EUR | 0.09% | -0.02% | 0.08% | -0.08% | -0.41% | -0.03% | -0.09% | |
| GBP | 0.11% | 0.03% | 0.10% | -0.04% | -0.36% | 0.00% | -0.04% | |
| CAD | 0.01% | -0.07% | -0.09% | -0.13% | -0.46% | -0.10% | -0.14% | |
| AUD | 0.14% | 0.08% | 0.06% | 0.17% | -0.34% | 0.05% | -0.02% | |
| JPY | 0.50% | 0.42% | 0.41% | 0.50% | 0.36% | 0.40% | 0.36% | |
| NZD | 0.11% | 0.03% | 0.02% | 0.11% | -0.05% | -0.39% | -0.04% | |
| CHF | 0.17% | 0.08% | 0.06% | 0.15% | 0.02% | -0.30% | 0.05% |
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).
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
Source: https://www.fxstreet.com/news/japanese-yen-strengthens-against-usd-despite-falling-rates-of-inflation-in-tokyo-202401090225