- Japanese Yen maintains strength against a weak USD for the third consecutive day.
- The BOJ anticipates another rate increase, with a less risky environment bolstering the Safe Haven JPY.
- New USD sales create downward pressure on the USD/JPY pair.
The Japanese Yen (JPY) is expected to continue its upward trend during Thursday’s Asian session, exerting downward pressure on the USD/JPY pair for a third straight day, fueled partly by new sales of US dollars (USD). Recent wholesale inflation data from Japan indicated that businesses are passing on costs to consumers, raising concerns about inflation in the country. Additionally, the Lieutenant Governor of the Bank of Japan (BOJ) reiterated the potential for policy tightening, which adds support to the Yen.
Moreover, a slight decline in global risk sentiment supports the safe-haven status of the JPY, as seen in the generally sluggish stock market. On the flip side, the USD has struggled to attract buyers as traders await the forthcoming US Producer Price Index (PPI) and remarks from Federal Reserve Chairman Jerome Powell. At the same time, some optimism surrounding the easing of US-China trade tensions may somewhat hinder the JPY’s performance. The reduced expectations for aggressive monetary policy easing by the Fed could also help limit losses in the USD.
Japan’s Yen remains strong amid BOJ rate hike speculation and subdued risk appetite
- The Japanese Producer Price Index (PPI), released on Wednesday, underscores ongoing price pressures, reinforcing the case for monetary policy normalization by the Bank of Japan. The BOJ’s Lieutenant Governor emphasized the commitment to raise interest rates if economic and pricing conditions improve as projected.
- Conversely, investors exhibited caution during the North American session ahead of the US PPI release and Chairman Powell’s appearance, which contributed to the Japanese Yen’s relative strength against the dollar for the third day running.
- The recent US consumer price index, which came in below expectations, has bolstered market perceptions that the Federal Reserve might further reduce interest rates. This sentiment impacts the USD/JPY pair, preventing the dollar from capitalizing on its brief rebound.
- Nonetheless, traders are tempering their expectations for aggressive Fed policy easing in light of trade optimism between the US and China, which may restrict the potential for new bearish bets on the dollar and contain further appreciation of the safe-haven JPY.
- Chicago Federal President Austan Goolsbee highlighted that some elements of the recent inflation report reflect lagging data and that it takes time for current inflation trends to manifest. He suggested that the Fed should remain patient and sift through the data noise.
- In a related note, Federal Reserve Vice Chair Philip Jefferson stated that the latest inflation data aligns with progress towards the 2% target but cautioned that future directions remain uncertain due to trade tariffs. He also remarked that current policy rates are appropriately restrictive to support economic growth.
- Furthermore, San Francisco Fed President Mary Daly noted that solid growth, a robust labor market, and moderated inflation are favorable. She affirmed that monetary policy is well-positioned and can adapt to changing economic conditions.
USD/JPY bears eye a drop below the 146.00 mark for potential losses
From a technical perspective, the USD/JPY pair faces challenges in maintaining gains from the overnight bump at the 23.6% Fibonacci retracement level, recovering from early April lows. Additionally, a negative oscillator on the hourly chart suggests that further declines may ensue below the 146.00 mark, potentially retesting the 145.60 zone or the weekly lows established on Wednesday. Further drops could lead to the 38.2% Fibonacci region around 145.35-145.30. Prices might then slide to a psychological level of 145.00, advancing toward the 144.70-144.65 range, which represents significant resistance on the 4-hour chart. If this resistance is broken, it implies that the recent recovery since early this year may have lost momentum, paving the way for deeper losses.
On the flip side, the area around 146.60 (23.6% Fibonacci level) could present more immediate resistance than the round figure of 147.00. Sustained strength above this threshold might trigger a short-covering rally, pushing USD/JPY towards the 148.00 round figure, with a mid-hurdle at 147.70. If prices exceed the 148.25-148.30 range, significant resistance could arise near 148.65. Should prices surpass the previously mentioned monthly peak, a return to the 149.00 mark could be feasible.
