- The Japanese Yen ticks higher and snaps a three-day losing streak against the USD.
- Bets for early rate cuts by the Fed weigh on the USD and act as a headwind for USD/JPY.
- The BoJ’s dovish stance, along with the risk-on environment, could undermine the JPY.
The Japanese Yen (JPY) weakened across the board on Tuesday after the Bank of Japan (BoJ) decided to maintain the status quo and stick to its ultra-loose monetary policy settings. The central bank also made no changes to its dovish policy guidance and disappointed some investors’ hopes for a language to signal a near-term shift away from negative interest rates. This, along with the recent risk-on rally across the global equity markets, weighed heavily on the safe-haven JPY and pushed the USD/JPY pair to a four-day high.
The strong intraday positive move, however, ran out of steam just ahead of the 145.00 psychological mark amid the emergence of fresh selling around the US Dollar (USD). The Federal Reserve (Fed) took a dovish turn last week and projected an average of three 25 basis points (bps) rate cuts in 2024, which continues to undermine the Greenback. Meanwhile, a slew of influential Fed officials recently downplayed speculations about an imminent shift in the US central bank’s policy stance, albeit did little to impress the USD bulls.
The USD/JPY pair retreated over 100 pips intraday and remains on the defensive through the Asian session on Wednesday, snapping a three-day winning streak. The downtick seems unaffected by Japan’s trade data, which showed that both exports and imports dropped more than expected in November. That said, the BoJ-Fed policy divergence might continue to exert pressure on the JPY and help limit losses for the major. Traders now look to the Conference Board’s US Consumer Confidence Index for a fresh impetus.
The focus, however, will remain glued to the release of the US Core Personal Consumption Expenditure (PCE) Price Index – the Fed’s preferred inflation gauge on Friday. The key US inflation reading will be looked upon for fresh clues about the Fed’s future policy decisions, which, in turn, will drive the USD demand and provide a fresh directional impetus to the USD/JPY pair. In the meantime, the aforementioned supportive fundamental backdrop might continue to act as a tailwind for spot prices and limit any corrective pullback.
Daily Digest Market Movers: Japanese Yen recovers a bit after the post-BoJ slump on Tuesday
- Bets that the Federal Reserve will start cutting rates by the first half of 2024 continues to weigh on the US Dollar and prompts some selling around the USD/JPY pair on Wednesday.
- Chicago Fed President Austan Goolsbee, in an interview with Fox TV, cautioned that markets have gotten ahead of themselves and the central bank should not be bullied by what the market wants.
- The US Census Bureau reported on Tuesday that Housing Starts surged 14.8% in November to 1.56 million units, while Building Permits declined 2.5% after rising 1.8% (revised from 1.1%) in October.
- The USD bulls, meanwhile, seem unimpressed by the fact that a slew of influential FOMC members recently pushed back against market expectations for early interest rate cuts in 2024.
- The Bank of Japan decided to leave its ultra-loose monetary policy unchanged on Tuesday and gave no sign that negative rates were set to end, which could undermine the Japanese Yen.
- In the post-meeting press conference, BoJ Governor Kazuo Ueda reiterated that the central bank won’t hesitate to take additional easing measures and will keep scrutinising the wage-price virtuous cycle.
- Data released this Wednesday showed that Japan’s trade deficit narrowed to ¥776.9 billion in November, with imports falling 11.9% and exports dipping 0.2% on the back of weak Chinese demand.
- The prevalent risk-on environment might further dent the JPY’s relative safe-haven status and help limit any meaningful downside for the USDJPY pair.
- Traders now look to the release of the Conference Board’s Consumer Confidence Index, though the focus will remain on a key US inflation reading – the US Core PCE Price Index on Friday.
Technical Analysis: USD/JPY extends the overnight pullback from 145.00 neighbourhood, or multi-day high
From a technical perspective, the post-BoJ rally falters near the 38.2% Fibonacci retracement level of the November-December downfall from the 152.00 neighbourhood. The said barrier is pegged near the 145.00 mark, which should now act as an immediate strong resistance and a key pivotal point. A sustained strength beyond will suggest that the USD/JPY pair has formed a near-term bottom and pave the way for some meaningful appreciating move. The subsequent move-up has the potential to lift spot prices to the next relevant hurdle near the mid-145.00s en route to the 146.00 round figure and the 50% Fibo. level, around the 146.40 region.
On the flip side, weakness below the 143.55-143.50 region, representing the 23.6% Fibo. level, could find some support near the 143.00 round figure. This is followed by a technically significant 200-day Simple Moving Average, currently pegged near the 142.65 zone, which if broken decisively will shift the bias back in favour of bearish traders. The USD/JPY pair might then turn vulnerable to weaken further below the 142.00 mark and accelerate the slide to the 141.75 horizontal support before aiming to retest sub-141.00 levels, or a multi-month low touched last week.
Japanese Yen price this week
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the weakest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.68% | -0.37% | -0.26% | -0.96% | 1.12% | -0.92% | -1.13% | |
| EUR | 0.67% | 0.31% | 0.43% | -0.25% | 1.80% | -0.23% | -0.43% | |
| GBP | 0.37% | -0.31% | 0.11% | -0.58% | 1.49% | -0.54% | -0.76% | |
| CAD | 0.26% | -0.43% | -0.12% | -0.70% | 1.40% | -0.67% | -0.87% | |
| AUD | 0.93% | 0.26% | 0.57% | 0.68% | 2.07% | 0.03% | -0.17% | |
| JPY | -1.17% | -1.87% | -1.54% | -1.42% | -2.12% | -2.10% | -2.31% | |
| NZD | 0.91% | 0.22% | 0.55% | 0.66% | -0.03% | 2.03% | -0.21% | |
| CHF | 1.11% | 0.42% | 0.74% | 0.86% | 0.17% | 2.22% | 0.21% |
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).
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Source: https://www.fxstreet.com/news/japanese-yen-remains-on-the-defensive-against-usd-amid-bojs-dovish-policy-stance-202312200140