- The Japanese Yen loses traction in reaction to softer inflation figures from Japan.
- Dovish Fed expectations should undermine the USD and cap the USD/JPY pair.
- Traders now look to the US Core PCE Price Index for some meaningful impetus.
The Japanese Yen (JPY) snaps a two-day winning streak against the US Dollar (USD), allowing the USD/JPY pair to stage a goodish intraday bounce from the 141.85 area or a fresh weekly low touched during the Asian session on Friday. Japan’s core Consumer Price Index (CPI) eased a bit in November, as was widely expected, and adds to the uncertainty over the timing of when the Bank of Japan (BoJ) will pivot away from its ultra-dovish stance. Moreover, minutes of the BoJ October monetary policy meeting showed that members agreed to the need to patiently maintain the current easy policy, which, in turn, is seen undermining the JPY.
The USD, on the other hand, reverses a part of the overnight downfall to a near five-month low, touched in the aftermath of a downward revision of the US Q3 GDP print. Moreover, growing acceptance that the Federal Reserve (Fed) will start cutting interest rates as early as March 2024 keeps the US Treasury bond yields depressed near a multi-month low and should cap any meaningful appreciating move for the buck. Meanwhile, inflation in Japan remains well above the BoJ’s 2% target, which, along with hopes that wage growth next year may outpace that of 2023, suggests that the central bank will begin tightening its policy as soon as April, if not in January.
This, in turn, warrants some caution before placing aggressive bullish bets around the USD/JPY pair as traders now look to the US Core Personal Consumption Expenditure (PCE) Price Index for a fresh impetus. The key US inflation data will influence the Fed’s future policy decisions and drive the USD demand.
Daily Digest Market Movers: Japanese Yen retreats from one-week top against USD on softer inflation data
- Japan’s core Consumer Price Index (CPI) slowed from the prior month’s print of 2.9% and rose 2.5% in November from a year earlier, marking its slowest pace since August 2022.
- Furthermore, a core reading that excludes both fresh food and fuel prices eased to 3.8% year-on-year from 4% in October, suggesting that the underlying inflation was also easing.
- Meanwhile, headline CPI decelerated from the 3.3% seen in the prior month to 2.8% year-on-year in November, raising doubt over the possibility of a Bank of Japan policy pivot.
- All three inflation measures, however, remain well above the BoJ’s 2% target and support prospects for an imminent shift in the central bank’s ultra-dovish policy stance.
- Minutes of the BoJ October monetary policy meeting showed that several members backed the case to sustain the Yield Curve Control (YCC) policy to continue supporting wage growth.
- The US Dollar languishes near a multi-month low on the back of bets that the Federal Reserve will start easing its policy early next year and a downward revision of the US Q3 GDP.
- The third and final reading from the US Bureau of Economic Analysis showed that the world’s largest economy expanded by a 4.9% annualized pace vs. a 5.2% rise in the second estimate.
- Separately, the Labor Department reported that Initial Weekly Jobless Claims rose slightly, by 2K to 205K during the week that ended December 16, though remained at historically low levels.
- The CME Group’s FedWatch Tool, meanwhile, indicates a greater chance that the Fed will cut interest rates in March 2024 and deliver 150 bps of cumulative cuts by the year end.
- Investors now await the crucial US core Personal Consumption Expenditure (PCE) Price Index, which is expected to rise by 0.2% in November and come in at 3.3% on a yearly basis.
- Friday’s US economic docket also features the release of Durable Goods Orders, which will influence the USD and produce short-term opportunities around the USD/JPY pair.
Technical Analysis: USD/JPY approaches 200-day SMA pivotal point, upside potential seems limited
From a technical perspective, spot prices showed some resilience below the 142.00 mark and for now, seem to have snapped a two-day losing streak. That said, the overnight breakdown back below the very important 200-day Simple Moving Average (SMA) favours bearish traders. Moreover, oscillators on the daily chart are holding deep in the negative territory, suggesting that the path of least resistance for the USD/JPY pair is to the downside. Hence, any subsequent move up might still be seen as a selling opportunity and remain capped near the 142.75 region (200-day SMA). That said, some follow-through buying, leading to a subsequent move beyond the 143.00 mark, might prompt some short-covering move and allow bulls to reclaim the 144.00 round figure.
On the flip side, weakness below the Asian session low, around the 141.90-141.85 region, will reaffirm the near-term bias and make the USD/JPY pair vulnerable to retesting sub-141.00 levels, or a multi-month low touched last week. The subsequent downfall has the potential to drag spot prices towards the 140.45 intermediate support en route to the 140.00 psychological mark.
Japanese Yen price today
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the weakest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.04% | -0.01% | -0.03% | 0.02% | 0.18% | 0.01% | 0.00% | |
| EUR | -0.04% | -0.04% | -0.10% | -0.02% | 0.10% | -0.03% | -0.03% | |
| GBP | 0.01% | 0.03% | -0.04% | -0.05% | 0.20% | -0.04% | 0.00% | |
| CAD | 0.03% | 0.07% | 0.03% | 0.06% | 0.23% | 0.04% | 0.03% | |
| AUD | -0.03% | 0.02% | -0.02% | -0.06% | 0.15% | -0.01% | 0.06% | |
| JPY | -0.15% | -0.10% | -0.11% | -0.18% | -0.09% | -0.11% | -0.12% | |
| NZD | -0.01% | 0.05% | 0.01% | -0.03% | 0.03% | 0.17% | 0.02% | |
| CHF | -0.03% | 0.04% | -0.01% | -0.03% | 0.01% | 0.13% | 0.01% |
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).
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.
The Bank’s massive stimulus 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 policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.
A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.
Source: https://www.fxstreet.com/news/japanese-yen-retreats-from-one-week-high-against-us-dollar-on-softer-inflation-data-202312220148