On Wednesday, early trading in Europe saw the AUD/JPY pair drop to approximately 111.70. The Japanese yen has gained ground against the Australian dollar, as traders stay cautious regarding potential currency interventions by Japanese officials. Minoru Kihara, Japan’s Chief Cabinet Secretary, stated on Tuesday that the government would respond appropriately to fluctuations in the currency market if necessary.
Data from the Australian Bureau of Statistics released on Wednesday revealed that the consumer price index (CPI) for May increased by 4.0% year-over-year, down from a 4.2% rise in April. The market had anticipated a growth rate of 4.4% for this reporting period. In terms of monthly CPI, May showed a decline of 0.7%, compared to a previous increase of 0.4%, which was slower than the expected 0.3% decrease.
Technical analysis:
From a daily chart perspective, the AUD/JPY pair is currently in a bearish phase in the short term, with the spot price remaining below the 100-day simple moving average (SMA) and the middle band of Bollinger Bands. It has dipped near the lower end of its recent range, hovering just above Bollinger’s lower support level at 111.54. The Relative Strength Index (RSI) stands at 35.8, suggesting weak momentum and nearing oversold conditions.
For those looking at potential resistance levels, the first lies at the 100-day SMA around 112.20, followed by the Bollinger Middle Band at 113.23. If there is a more significant rebound, the upper bound may be near 114.91. On the downside, breaching the lower band at 111.55 could lead to further declines, cementing the ongoing bearish outlook as long as daily closes remain under the 100-day SMA.
Frequently asked questions about the Japanese Yen
The Japanese Yen (JPY) ranks among the most traded currencies globally. Its value is largely influenced by economic trends in Japan but is also shaped by factors like the policies of the Bank of Japan, the gap in bond yields between Japan and the U.S., and the risk sentiment of traders.
The Bank of Japan aims to control exchange rates, making its policies crucial to the yen’s value. While the Bank occasionally intervenes to devalue the yen, this is not a frequent occurrence due to political sensitivities with major trading partners. Since 2013, the ultra-easy policies have created a wider gap between the Bank of Japan and other central banks, leading to yen depreciation. However, recent gradual easing of these policies has lent some support to the yen.
Over the last decade, the Bank of Japan’s commitment to a very easy monetary policy has diverged significantly from that of other central banks, especially the Federal Reserve in the U.S. This divergence widened the gap between U.S. 10-year bonds and Japan’s 10-year bonds, favoring the U.S. dollar against the yen. With the Bank’s gradual move away from this policy in 2024, along with rate cuts from other major banks, this gap is starting to narrow.
The Japanese yen is often viewed as a stable investment. Thus, during market stress, investors tend to flock to the yen, which is seen as reliable. When market turbulence flares up, the yen’s value often increases compared to riskier currencies.
