- The Japanese yen has been struggling to take advantage of the recovery from the previous day’s year-to-date low.
- Hawkish expectations from the Fed will support the USD and further support the USD/JPY pair.
- Betting on an imminent change in the Bank of Japan’s policy stance will help limit the yen’s downside.
The Japanese yen (JPY) attracted new sellers on Wednesday, and its modest recovery against the US yen from its year-to-date lows hit earlier this week appears to have stalled for now. Japan’s real wages fell for the 21st straight month in December, and household spending fell for the 10th straight month, according to data released by the Labor Ministry on Tuesday. This is seen as an unwelcome development for the Bank of Japan, which, combined with the overall strength of the stock market, could undermine the value of the safe-haven yen.
Meanwhile, the US dollar (USD) remains supported by expectations that the US Federal Reserve will keep interest rates high for an extended period of time, supported by stronger-than-expected US macro data. ing. This, combined with recent hawkish comments from several FOMC members, has forced investors to scale back their bets on an early, deep rate cut in 2024. This is still supporting U.S. Treasury yields higher, which is a tailwind for greenbacks. This allows the USD/JPY pair to attract bullish buying near 147.70.
However, the yen suffered losses after the Bank of Japan turned hawkish earlier this month, expressing confidence in achieving its inflation target and preparing to move interest rates out of negative territory at its next board meeting in March or April. may be limited. Moreover, investors appear confident that wage growth this year could outpace that of 2023, paving the way for the Bank of Japan to emerge from a decade of ultra-easy policy. This means that some caution should be exercised before making aggressive bullish bets around the USD/JPY pair and taking positions for further intraday gains.
Daily Digest Market Movers: Japanese yen falls amid positive risk tone, bears appear less aggressive
- The Japanese yen lost momentum on Wednesday following a steady performance in the stock market, but losses should be limited on expectations that the Bank of Japan’s policy stance will change in the near term.
- Market participants now appear confident that another big wage hike this year will support sustained and stable inflation, allowing the Bank of Japan to shift away from ultra-dovish monetary policy settings.
- Geopolitics remains a key risk to the market, along with China’s economic woes, which will benefit the safe-haven yen and put pressure on the USD/JPY pair during Asian trading on Wednesday.
- The resilient US economy and recent hawkish comments from influential FOMC members continue to cause investors to dial back their hopes for a deep Fed rate cut soon.
- Philadelphia Federal Reserve Bank President Patrick Harker said Tuesday that inflation would need to fall sustainably to open the door to rate cuts, and that cutting rates prematurely would be a mistake.
- Mr Harker added that while recent news on inflation was encouraging, wage growth was still too high to reach the 2% target and inflation could persist longer than expected.
- Separately, Minneapolis Fed President Neel Kashkari said the fight against inflation is far from over and most of the gains from disinflation are coming from the supply side, but the statistics look positive.
- This echoes comments by Federal Reserve Chairman Jerome Powell on Sunday that the strong economy will give the central bank time to assess whether inflation will continue to fall before starting to cut interest rates.
- Additionally, the benchmark 10-year US Treasury yield is above 4.0%, which should provide tailwinds for the US dollar and provide some support for the USD/JPY pair heading into European trading.
Technical analysis: USD/JPY may attract new sellers at higher levels, 148.80 wall holds key for bulls
From a technical perspective, the failure to accept above the 148.80 level this week constitutes the formation of a bearish double top pattern. That being said, although the oscillator on the daily chart is losing traction, it still remains in positive territory and some caution is warranted before taking positions towards deeper losses. That said, some follow-through selling below the 100-day simple moving average (SMA), which is currently anchored around 147.60-147.55, could further pull the USD/JPY pair towards the 147.00 round number. . A solid break below the latter could further accelerate the correctional decline towards levels below 146.00 or the intermediate support at 146.35 on the way to last week’s monthly low.
On the contrary, the momentum above the 148.00 mark seems to be facing resistance around 148.30-148.35. On the other hand, bulls are likely to wait for sustained strength above the double top resistance at 148.80 before making new bets. Thereafter, the USD/JPY pair could cross the intermediate hurdle around 149.55-149.60 and aim to recover the psychological mark of 150.00.
(Note: This article was corrected at 7:35 p.m. Japan time to say the yen attracts new sellers on “Wednesday” instead of “Thursday” in the first paragraph.)
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 US dollar.
| USD | EUR | GBP | CAD | australian dollar | JPY | new zealand dollar | Swiss franc | |
| USD | -0.07% | -0.06% | -0.09% | -0.16% | -0.06% | -0.17% | -0.04% | |
| EUR | 0.05% | 0.01% | -0.01% | -0.07% | 0.01% | -0.08% | 0.02% | |
| GBP | 0.06% | -0.02% | -0.04% | -0.08% | 0.01% | -0.10% | 0.02% | |
| CAD | 0.09% | 0.00% | 0.02% | -0.06% | 0.02% | -0.10% | 0.01% | |
| australian dollar | 0.13% | 0.06% | 0.07% | 0.05% | 0.07% | -0.04% | 0.09% | |
| JPY | 0.05% | -0.02% | 0.00% | -0.04% | -0.10% | -0.12% | -0.02% | |
| new zealand dollar | 0.17% | 0.09% | 0.10% | 0.06% | 0.01% | 0.10% | 0.10% | |
| Swiss franc | 0.03% | -0.03% | -0.01% | -0.05% | -0.07% | 0.00% | -0.11% |
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).
Frequently asked questions about the Japanese Yen
The Japanese Yen (JPY) is one of the most traded currencies in the world. Its value is determined broadly by trends in Japan’s economy, but more specifically by factors such as the Bank of Japan’s policies, the difference in Japanese and U.S. bond yields, and traders’ risk sentiment.
One of the Bank of Japan’s missions is exchange control, so its trends are key to the yen. The Bank of Japan occasionally intervenes directly in currency markets, generally to devalue the yen, but does not do so frequently due to political concerns in major trading partners. The Bank of Japan’s current ultra-easy monetary policy, based on large-scale economic stimulus, has caused the yen to weaken against major currencies. 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 commitment to ultra-easy monetary policy has widened the gap between its policies and those of other central banks, especially the US Federal Reserve. This confirms the widening gap between the US and Japanese 10-year bonds, favoring the US dollar versus the Japanese yen.
The Japanese yen is often seen as a safe investment. This means that when markets are under stress, investors are more likely to put money into the Japanese currency, which is expected to be reliable and stable. Times of turmoil are likely to increase the value of the yen against other currencies that are considered riskier investments.
