- The Japanese yen fell slightly against the US dollar on Thursday, but the downside appears to be limited.
- The risk-on mood and the recent widening of the Japan-U.S. interest rate differential are putting pressure on the yen.
- The Bank of Japan's hawkish leanings could be a tailwind for the yen, as the dollar's price movements are subdued.
- Traders are keeping an eye on US second-quarter GDP ahead of key inflation data released in Japan and the US on Friday.
The Japanese yen (JPY) fell against the US yen during Asian trading on Thursday, retreating further from its over-one-week high set a day earlier. It has been found that the bullish sentiment underlying the global stock market as a whole and the recent widening of the Japan-U.S. interest rate differential are the main factors encouraging capital outflows from the safe-haven Japanese yen. The decline may also be due to a change in trade positioning ahead of preliminary US fourth-quarter GDP growth numbers scheduled to be released during the North American session.
Meanwhile, the Bank of Japan (BOJ) took a slightly more hawkish stance earlier this week, suggesting conditions were ripe for phasing out stimulus and negative interest rates. This, along with the risk of further escalation of military action in the Middle East, would limit losses for the Japanese yen. Meanwhile, the U.S. dollar (USD) remains below its highest since Dec. 13 on Tuesday amid uncertainty about when the Federal Reserve will start cutting interest rates. This could further contribute to capping the upside of USD/JPY.
Traders may also hold off on aggressive bets ahead of key inflation data released from Japan and the United States on Friday. Japan's statistics bureau is scheduled to release the Tokyo Core CPI report during the Asia meeting. However, market attention remains glued to the U.S. personal consumption expenditure (PCE) price index, which could influence market expectations regarding the Fed's future policy decisions. This will drive demand for the USD in the short term and play a key role in determining the next direction for the USD/JPY pair.
Daily Digest Market movers: Japanese yen falls as trade repositions ahead of US GDP
- The Japanese yen is moving away from Wednesday's over-one-week high, and while the Bank of Japan's hawkish leanings should be a tailwind, a combination of factors is pushing the yen lower.
- The market's positive sentiment further increased after the People's Bank of China announced that it would cut the deposit reserve ratio by 50 basis points starting February 5 to stimulate the economy.
- Benchmark 10-year U.S. Treasury yields have rebounded sharply to near monthly highs on the back of strong U.S. economic data, supporting the U.S. dollar and the USD/JPY pair.
- S&P Global's U.S. manufacturing PMI recovered to a 15-month high of 50.3 from January's 47.9, while the services sector index rose to 52.9, its highest since June of last year. .
- Additionally, this month's preliminary US composite PMI production index rose to 52.3, the highest reading since June of last year, suggesting the world's largest economy has started 2024 on a stronger note.
- This comes on top of strong consumer spending and labor market data released last week, and investors are further dampening hopes for an early interest rate cut by the US Federal Reserve.
- Bank of Japan Governor Kazuo Ueda said on Tuesday that the chances of sustainably achieving the 2% inflation target are gradually increasing as the foundations are laid for monetary policy normalization.
- The head of Japan's largest business association, Keidanren, has called for wage increases to exceed the rate of inflation this year to pave the way for the Bank of Japan to shift away from ultra-easy monetary policy settings.
- Mild verbal intervention by Japan's top currency diplomat, Masato Kanda, does little to impress or give momentum to yen bulls, but it does help keep the USD/JPY pair in check. Maybe.
- Karita said the government is closely monitoring the impact of the central bank's decisions on financial markets, and it is important that the exchange rate remains stable and reflects economic fundamentals.
- Traders are now focused on Advance US's fourth quarter GDP report. The report is expected to show growth in the world's largest economy slowed to an annualized pace of 2% from 4.9% in the previous quarter.
- Thursday's US economic data also includes the release of durable goods orders and the customary weekly new jobless claims numbers, which could provide some stimulus to the dollar and the USD/JPY pair.
- Market attention will then turn to Friday's data from the Tokyo Core CPI and the U.S. Personal Consumption Expenditure Price Index, the Fed's preferred measure of inflation.
Technical analysis: USD/JPY manages to stay above 100-day SMA, lacks bullish conviction
From a technical perspective, this week's failure to accept below the 100-day simple moving average (SMA) and subsequent rebound suggests that the path of least resistance for the USD/JPY pair is to the upside. are doing. That said, a further move up could face some resistance around the 148.00 round ahead of the 148.20-148.25 area. The next relevant hurdle is set near 148.80, or the multi-week high set last Friday, which, if cleared, would provide another opening for bullish traders. Given that the oscillator on the daily chart remains comfortably in positive territory, the spot price may aim to cross the intermediate hurdle around the 149.30-149.35 zone and regain the psychological mark of 150.00.
On the other hand, weakness below the 100-day SMA, currently near 147.55, could continue to attract some buyers near the 147.00 mark. This should help limit the downside for the USD/JPY pair around the 146.45 zone, or the weekly low reached the previous day. However, some follow-through selling will negate the positive bias and shift the short-term bias in favor of bearish traders, paving the way for a decline to test the horizontal support at 146.10-146.00. The downward trajectory could extend further towards the intermediate support at 145.30-145.25 on the way to the psychological mark of 145.00.
Today's Japanese yen price
The table below shows the percentage change of the Japanese Yen (JPY) against major listed currencies today. The Japanese yen was the strongest against the Swiss franc.
| USD | EUR | GBP | CAD | australian dollar | JPY | new zealand dollar | Swiss franc | |
| USD | 0.05% | 0.08% | 0.03% | 0.08% | 0.05% | 0.04% | 0.16% | |
| EUR | -0.05% | 0.04% | -0.03% | 0.01% | 0.00% | -0.03% | 0.11% | |
| GBP | -0.08% | -0.04% | -0.05% | -0.04% | -0.03% | -0.05% | 0.08% | |
| CAD | -0.03% | 0.02% | 0.05% | 0.03% | 0.02% | 0.00% | 0.12% | |
| australian dollar | -0.04% | -0.01% | 0.02% | -0.03% | 0.01% | -0.02% | 0.10% | |
| JPY | -0.05% | 0.00% | 0.06% | -0.01% | 0.02% | -0.04% | 0.11% | |
| new zealand dollar | 0.00% | 0.03% | 0.05% | -0.02% | 0.05% | 0.02% | 0.13% | |
| Swiss franc | -0.16% | -0.11% | -0.08% | -0.13% | -0.08% | -0.10% | -0.12% |
The heat map shows the percentage change between major currencies. The base currency is selected from the left column and the quote currency is selected from the top row. For example, if you select Euro from the left column and move along the horizontal line to Japanese Yen, the percentage change displayed in the box represents EUR (base)/JPY (estimate).
Bank of Japan Frequently Asked Questions
The Bank of Japan (BoJ) is Japan's central bank, which determines the country's monetary policy. Its mission is to issue paper money and exercise monetary and monetary control to ensure price stability, which means an inflation target of about 2%.
The Bank of Japan began a super-easy monetary policy in 2013 to stimulate the economy and promote inflation in a low-inflation environment. The bank's policy is based on quantitative and qualitative easing (QQE), or printing money that provides liquidity by buying assets such as government bonds and corporate bonds. In 2016, the bank doubled down on its strategy, first introducing negative interest rates and then further easing policy by directly controlling the yield on 10-year Treasuries.
The yen has weakened compared to major currencies due to the World Bank's large-scale economic stimulus package. This process has recently been exacerbated by increased policy divergence between the Bank of Japan and other major central banks, which have taken significant steps to combat the highest levels of inflation in decades. They are choosing to raise interest rates. The Bank of Japan's interest rate restraint policy has widened the gap with other currencies, pushing down the value of the yen.
Japan's inflation rate has risen due to the weak yen and soaring global energy prices, exceeding the Bank of Japan's 2% target. However, the Bank of Japan has judged that there is still no prospect of achieving the 2% target in a sustainable and stable manner, and it is unlikely that the current policy will be changed suddenly.
