- The Japanese Yen fails to lure buyers amid the BoJ policy uncertainty and the risk-on mood.
- Geopolitical risks and intervention fears to help limit the downside for the safe-haven JPY.
- The Fed’s higher-for-longer narrative favours the USD bulls and lends support to USD/JPY.
The Japanese Yen (JPY) struggles to register any meaningful recovery against its American counterpart and languishes near a one-week low touched the previous day. A recession in Japan could delay the Bank of Japan’s (BoJ) plan to exit from the negative interest rate regime in the coming months. Apart from this, an extension of the risk-on rally across the global equity markets is seen undermining the safe-haven JPY, though a combination of factors hold back traders from placing aggressive bullish bets around the USD/JPY pair.
The recent verbal intervention by Japanese authorities and worries about a further escalation of geopolitical tensions in the Middle East might continue to benefit the JPY’s relative safe-haven status. Apart from this, subdued US Dollar (USD) price action further contributes to capping the USD/JPY pair. That said, elevated US Treasury bond yields, bolstered by bets that the Federal Reserve (Fed) will keep rates higher for longer, favour the USD bulls and support prospects for a further near-term appreciating move for the currency pair.
Daily Digest Market Movers: Japanese Yen draws support from geopolitical risks, lacks bullish conviction
- Attacks on commercial vessels in the Red Sea by Yemen’s Iran-aligned Houthi rebels show no sign of abating despite US and UK strikes, raising the risk of further military action and benefiting the safe-haven Japanese Yen.
- Japan’s Ministry of Finance and the Bank of Japan recently warned that they’re watching the exchange rate closely and are willing to intervene in the market to stem any further weakness in the domestic currency.
- Data released last week showed that Japan’s economy unexpectedly entered a technical recession during the fourth quarter, fuelling speculations that the BoJ might delay its plans to exit the ultra-easy policy regime.
- On the other hand, the FOMC meeting minutes on Wednesday, along with comments by a slew of influential Federal Reserve officials, reiterated the message that the central bank will keep interest rates higher for longer.
- Fed Vice Chair Philip Jefferson said on Thursday that he was cautiously optimistic about progress on inflation and that he will be looking at the totality of data when weighing interest rate cut options, not a single indicator.
- Separately, Philadelphia Fed President Patrick Harker noted that the central bank is approaching the point of cutting interest rates, though policymakers remain unsure of when specifically, that might happen.
- Furthermore, Fed Governor Lisa Cook believes that the current monetary policy stance is restrictive and would like to have greater confidence that inflation is converging to 2% before beginning interest rate cuts.
- Meanwhile, Fed Governor Christopher Waller expects the FOMC to begin lowering at some point this year, but he will need more evidence to see that inflation is cooling before he is willing to support interest rate cuts.
- According to the CME FedWatch Tool, the current market pricing indicates about a 30% chance that the Fed will start cutting interest rates in May, much lower than a more than over 80% chance a month ago.
- Adding to this, fresh signs of strength in the US labor market remain supportive of elevated US Treasury bond yields, which favours the US Dollar bulls and should lend some support to the USD/JPY pair.
- The US Department of Labor reported that the number of Americans applying for unemployment insurance benefits declined to 201K during the week ending February 17 from the 213K in the previous week.
- The better-than-expected release of the flash PMI prints showed that the downturn in the Eurozone business activity eased in February, which further boosted investors’ sentiment and should cap gains for the JPY.
Technical Analysis: USD/JPY bulls have the upper hand, move beyond multi-month peak awaited
From a technical perspective, any meaningful pullback is likely to find decent support near the 150.00 psychological mark. This is followed by the weekly low, around the 149.70-149.65 region, which if broken could drag the USD/JPY pair further towards the 149.35-149.30 horizontal support en route to the 149.00 mark. Some follow-through selling below the 148.80-148.70 strong horizontal resistance breakpoint might shift the bias in favour of bearish traders and pave the way for deeper losses.
On the flip side, bulls might still wait for a sustained strength beyond the 150.85-150.90 area, or a multi-month top touched last week, before placing fresh bets. Given that oscillators on the daily chart are holding comfortably in the positive territory and are still away from being in the overbought zone, the USD/JPY pair might then climb to the 151.45 hurdle. The momentum could extend towards the 152.00 neighbourhood, or a multi-decade peak set in October 2022 and retested in November 2023.
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 Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.06% | -0.02% | 0.00% | -0.20% | -0.04% | -0.07% | 0.02% | |
| EUR | 0.05% | 0.03% | 0.05% | -0.14% | 0.01% | -0.02% | 0.05% | |
| GBP | 0.02% | -0.04% | 0.02% | -0.18% | -0.02% | -0.05% | 0.01% | |
| CAD | 0.00% | -0.06% | -0.03% | -0.20% | -0.03% | -0.08% | -0.01% | |
| AUD | 0.20% | 0.14% | 0.18% | 0.20% | 0.16% | 0.10% | 0.18% | |
| JPY | 0.03% | -0.01% | 0.04% | 0.04% | -0.16% | -0.03% | 0.04% | |
| NZD | 0.06% | 0.02% | 0.05% | 0.08% | -0.13% | 0.04% | 0.08% | |
| CHF | -0.01% | -0.07% | -0.03% | -0.01% | -0.22% | -0.05% | -0.11% |
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-rebounds-from-one-week-low-upside-potential-seems-limited-202402230151