Japanese Yen remains confined in a multi-week-old trading band against USD

The Japanese Yen struggles to capitalize on Tuesday’s Tokyo CPI-inspired gains.
The BoJ policy uncertainty is holding back the JPY bulls from placing fresh bets.
Subdued USD price action caps USD/JPY ahead of US data, Powell’s testimony.

The Japanese Yen (JPY) gained some positive traction and snapped a two-day losing streak against its American counterpart on Tuesday, though the momentum lacked strong follow-through. A rise in consumer prices in Tokyo – Japan’s capital city – comes on top of speculations that another substantial round of pay hikes by Japanese firms could fuel consumer spending and demand-driven inflation. This keeps the door open for an imminent shift in the Bank of Japan’s (BoJ) policy stance, which, along with the overnight slump in the US equity markets, provided a goodish lift to the safe-haven JPY.

That said, an unexpected recession in Japan raises uncertainty about the BoJ’s plan to exit its ultra-easy policy sometime this year, which, in turn, keeps a lid on any further gains for the JPY. The downside, however, remains cushioned in the wake of subdued US Dollar (USD) demand, undermined by Tuesday’s disappointing US macro data. Furthermore, traders seem reluctant to place aggressive directional bets and prefer to wait for more cues about the Federal Reserve’s (Fed) rate-cut path. Hence, the focus will remain on Fed chair Jerome Powell’s two-day congressional testimony starting this Wednesday.

Apart from this, the US macro releases – the ADP report on private-sector employment and JOLTS Job Openings data – should provide some impetus to the USD/JPY pair later during the early North American session. The market attention will then shift to the closely-watched official US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday. Heading into the key event/data risks, traders might opt to wait on the sidelines. Moreover, the mixed fundamental backdrop warrants caution before positioning for a firm near-term direction for the currency pair.

Daily Digest Market Movers: Japanese Yen bulls seem non-committed despite reviving bets for an imminent BoJ pivot

Data released on Tuesday showed that the Tokyo CPI rebounded from a 22-month low in February and revived talks that the Bank of Japan will soon exit the negative interest rates regime, boosting the Japanese Yen.
Moreover, investors seem convinced that another bumper pay hike this year should allow the BoJ to end its ultra-loose policy settings in the coming months, which, along with the risk-off impulse, benefitted the JPY.
The BoJ, however, is unlikely to rush into a rate hike and might wait until the June policy meeting before tightening, especially after two consecutive quarters of economic contraction, resulting in a technical recession.
The US Dollar is undermined by Tuesday’s disappointing release of the US ISM Services PMI, which showed that growth in the non-manufacturing sector slowed a bit in February amid a decline in employment.
The markets, however, are still pricing in the possibility of the first interest rate cut by the Federal Reserve in June, which helps limit the downfall in the US Treasury bond yields and act as a tailwind for the buck.
Traders also seem reluctant to place aggressive directional bets and look to Fed Chair Jerome Powell’s congressional testimony for fresh cues about the rate-cut path, which should provide some impetus to the USD.
Apart from this, Wednesday’s release of the ADP report on private-sector employment and JOLTS Job Openings data should contribute to producing short-term trading opportunities around the USD/JPY pair.

Technical analysis: USD/JPY extends multi-week-old rangebound move, downside potential seems limited

From a technical perspective, the USD/JPY pair has been oscillating in a familiar band over the past three weeks or so. Against the backdrop of a rally from the December swing low, this might still be categorized as a bullish consolidation phase and supports prospects for an eventual break to the upside. Moreover, oscillators on the daily chart are holding in the positive territory and validate the constructive outlook. That said, it will still be prudent to wait for acceptance above the 150.75-150.85 resistance zone, or the YTD peak touched in February, before positioning for any further appreciating move. Some follow-through buying beyond the 151.00 mark will reaffirm the positive bias and lift the USD/JPY pair to the 151.45 hurdle. The upward trajectory could extend further towards the 152.00 neighbourhood, or a multi-decade peak set in October 2022 and retested in November 2023.

On the flip side, the overnight swing low, around the 149.70 area, could protect the immediate downside ahead of the 149.20 region, or last week’s trough. This is followed by the 149.00 mark, which if broken decisively might shift the near-term bias in favour of bearish traders and prompt aggressive technical selling. The subsequent downfall could drag the USD/JPY pair to the 148.30 support en route to the 148.00 mark and the 100-day Simple Moving Average (SMA), currently pegged near the 147.75 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 strongest against the Australian Dollar.

 
USD
EUR
GBP
CAD
AUD
JPY
NZD
CHF

USD
 
-0.01%
-0.23%
0.30%
0.48%
-0.05%
0.47%
0.20%

EUR
0.01%
 
-0.25%
0.29%
0.48%
-0.04%
0.48%
0.21%

GBP
0.24%
0.24%
 
0.51%
0.72%
0.20%
0.69%
0.44%

CAD
-0.30%
-0.27%
-0.52%
 
0.19%
-0.35%
0.18%
-0.09%

AUD
-0.48%
-0.49%
-0.74%
-0.17%
 
-0.52%
-0.01%
-0.28%

JPY
0.05%
0.03%
-0.25%
0.31%
0.50%
 
0.48%
0.24%

NZD
-0.47%
-0.48%
-0.73%
-0.19%
0.01%
-0.53%
 
-0.27%

CHF
-0.20%
-0.21%
-0.43%
0.10%
0.29%
-0.25%
0.27%
 

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.

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