- The Japanese Yen meets with a fresh supply in reaction to the dismal domestic data.
- An uptick in the US bond yields acts as a tailwind for the USD and the USD/JPY pair.
- Expectations of a hawkish BoJ pivot should help limit any meaningful fall for the JPY.
The Japanese Yen (JPY) loses traction on Thursday, following an Asian session uptick, and hangs near a two-week low against the US Dollar (USD). Data released this Thursday showed that Japan’s factory activity contracted at the steepest pace in 10 months during December. This comes on top of a devastating 7.6 magnitude earthquake on New Year’s Day and turns out to be a key factor undermining the JPY. Meanwhile, minutes from the Federal Reserve’s (Fed) December policy meeting did little to offer any cues about the timing of when rate cuts might commence. This leads to a modest bounce in the US Treasury bond yields and acts as a tailwind for the USD, which, in turn, is further seen lending support to the USD/JPY pair.
The markets, however, have priced in a greater chance of a 25-basis point (bps) Fed rate cut in March, which should cap a one-week-old rally in the US Treasury bond yields. Furthermore, the growing market conviction that the Bank of Japan (BoJ) will shift away from negative interest rates and Yield Curve Control (YCC) policies in April, after the annual wage negotiations in March, should help limit losses for the domestic currency. Apart from this, a generally weaker tone around the equity markets is seen as another factor benefitting the JPY’s relative safe-haven status. Traders might also refrain from placing aggressive directional bets and prefer to move to the sidelines ahead of the crucial US monthly jobs report, or the Nonfarm Payrolls (NFP) on Friday.
Daily Digest Market Movers: Japanese Yen trades lower for the third successive day against US Dollar
- The Japanese Yen surrenders its modest Asian session gains in the wake of weaker domestic data, though a combination of supporting factors should help limit deeper losses.
- The au Jibun Bank Japan Manufacturing PMI remained in contraction territory for the seventh straight month and shrank to 47.9 in December – its weakest reading since February.
- The anticipation of a reversal in policy divergence between the Bank of Japan (BoJ) and the Federal Reserve (Fed) in 2024 should continue to lend some support to the JPY.
- Minutes of the December 12-13 FOMC meeting reflected a consensus that inflation is under control and concern about the risks that overly restrictive policy may pose to the economy.
- The minutes, however, did not provide direct clues about when rate cuts might commence, which, in turn, is seen acting as a tailwind for the US bond yields and the US Dollar.
- The Institute for Supply Management (ISM) said on Wednesday that the pace of decline in the US manufacturing sector slowed amid a modest rebound in production and improvement in factory employment.
- The US ISM Manufacturing PMI improved to 47.4 last month after being unchanged at 46.7 for two straight months, though remained in contraction territory for the 14th consecutive month.
- Separately, the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) showed that employment listings fell to 8.79 million in November – the lowest since March 2021.
- Investors now look to the US ADP report, which is expected to show that private-sector employers added 115K jobs in December as compared to the 103K in the previous month.
- The market focus, however, will remain glued to the official monthly employment details – popularly known as the Nonfarm Payrolls (NFP) report on Friday.
Technical Analysis: USD/JPY finds acceptance above 200-day SMA; could prolong the positive move
From a technical perspective, the overnight move beyond the 143.00-143.10 confluence, comprising the 200-day Simple Moving Average (SMA) and the 23.6% Fibonacci retracement level of the November-December downfall, favours bullish traders. That said, oscillators on the daily chart – though have been recovering from lower levels – are yet to confirm a positive bias. Hence, it will be prudent to wait for some follow-through buying before confirming that the USD/JPY pair has formed a near-term bottom and positioning for any further appreciating move.
In the meantime, the overnight swing high, around the 143.70-143.75 region, is likely to act as an immediate hurdle ahead of the 144.00 round figure. A sustained strength beyond the latter will reaffirm the positive outlook and lift the USD/JPY pair towards the 38.2% Fibo. level, around the 144.65 zone. The upward trajectory could get extended further and allow bulls to aim back towards reclaiming the 145.00 psychological mark.
On the flip side, the Asian session low, around the 142.85 region, coinciding with the very important 200-day SMA, might continue to protect the immediate downside. A convincing break below could make the USD/JPY pair vulnerable to accelerate the slide back towards the 142.00 mark. The next relevant support is pegged near the 141.75 horizontal zone, below which spot prices could weaken to the 141.00 round figure en route to the 140.75 intermediate support before eventually dropping to a multi-month low, around the 140.25 region.
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 US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 1.24% | 0.52% | 0.73% | 1.20% | 1.64% | 1.20% | 1.12% | |
| EUR | -1.08% | -0.53% | -0.35% | 0.16% | 0.47% | 0.13% | -0.01% | |
| GBP | -0.54% | 0.55% | 0.21% | 0.68% | 1.20% | 0.68% | 0.52% | |
| CAD | -0.73% | 0.34% | -0.04% | 0.48% | 0.95% | 0.46% | 0.33% | |
| AUD | -1.22% | -0.13% | -0.68% | -0.49% | 0.23% | 0.01% | -0.13% | |
| JPY | -1.66% | -0.39% | -1.06% | -0.72% | -0.23% | -0.28% | -0.60% | |
| NZD | -1.21% | -0.12% | -0.68% | -0.48% | 0.01% | 0.27% | -0.14% | |
| CHF | -1.05% | 0.04% | -0.51% | -0.29% | 0.18% | 0.58% | 0.17% |
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).
Japanese Yen FAQs
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.
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.
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.
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.
Source: https://www.fxstreet.com/news/japanese-yen-struggles-near-two-week-low-against-usd-bulls-starting-to-lose-grip-202401040158