Japanese Yen struggles to gain momentum, eyes on Fed decision

The Japanese Yen continues to be undermined by the divergent BoJ-Fed policy expectations.
Bets that the Fed will keep rates higher for longer, lift the USD, and lend support to USD/JPY.
The risk-off impulse underpins the safe-haven JPY and caps gains ahead of the FOMC decision.

The Japanese Yen (JPY) registered heavy losses against its American counterpart on Tuesday and reversed a major part of the previous day’s sharp gains led by a possible intervention by Japanese authorities. The main driver of the JPY weakness is the interest-rate differential between Japan and the United States (US), which is expected to remain wide for some time. This, along with a goodish pickup in the US Dollar (USD) demand, provided an additional lift to the USD/JPY pair and contributed to the strong intraday move up. 

The USD buying remained unabated during the Asian session on Wednesday amid growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer, bolstered by incoming US macro data that pointed to still sticky inflation. That said, the risk-off impulse – as depicted by the overnight slump in the US equity markets and a sea of red across the Asian equity markets – lends some support to the safe-haven JPY. This, in turn, acts as a headwind for the USD/JPY pair ahead of the crucial FOMC policy decision later today.

Daily Digest Market Movers: Japanese Yen fails to capitalize on possible intervention-led gains amid BoJ’s uncertain rate outlook

The Japanese Yen remains on the defensive on Wednesday amid the Bank of Japan’s cautious approach towards further policy tightening and uncertain rate outlook, albeit the risk-off impulse helps limit deeper losses.
The headline au Jibun Bank Japan Manufacturing PMI was finalized at 49.6 for April, which was noticeably higher than the previous month’s reading of 48.2 and also marked the slowest contraction in eight months.
Reports suggest that Japan may provide tax breaks for companies converting foreign profits into the JPY, though this does little to provide respite to bulls or any meaningful impetus to the USD/JPY pair amid a stronger US Dollar. 
From the US, the Labor Department reported on Tuesday that labor costs increased more than expected during the first quarter amid a rise in wages and benefits, confirming the surge in inflation early in the year.
This comes on top of Friday’s release of the US Personal Consumption Expenditures (PCE) Price Index, which pointed to still sticky inflation, and reaffirmed bets that the Federal Reserve will delay cutting interest rates.
The data reaffirmed market bets that the US central bank will begin the rate-cutting cycle only in September, lifting the US Dollar to over a two-week high and providing a strong boost to the USD/JPY pair on Tuesday.
The USD bulls, meanwhile, seem unaffected by the Conference Board’s survey, showing that the Consumer Confidence Index fell to 97.0 in April – the lowest level since July 2022 – from a downwardly revised 103.1 in March.
Adding to this, the Chicago PMI remained in negative territory for the fifth straight month and dropped sharply from 41.4 to 37.9 in April, or the lowest level since November 2022, albeit does little to hinder the USD rise.
The focus, meanwhile, remains on the crucial FOMC policy decision, scheduled to be announced later during the US session, which will influence the USD and provide a fresh directional impetus to the USD/JPY pair.
Heading into the key central bank event risk, traders on Wednesday will take cues from the US macroeconomic releases – the ADP report on private-sector employment, JOLTS Job Openings and ISM Manufacturing PMI. 

Technical Analysis: USD/JPY bulls now await strength beyond the 158.00 mark before positioning for any further appreciating move

From a technical perspective, the suspected intervention-inspired slump on Monday showed some resilience below the 200-hour Simple Moving Average (SMA). The subsequent move up, along with positive oscillators on hourly charts, suggests that the path of least resistance for the USD/JPY pair is to the upside. Bulls, however, might prefer to wait for a move beyond the 158.00 mark, or the 50% Fibonacci retracement level of the early week steep decline, before placing fresh bets. Spot prices might then surpass an intermediate hurdle near the 158.40-158.45 region and aim to reclaim the 159.00 mark.

On the flip side, any downfall below the 157.50-157.45 immediate support might now attract fresh buyers and remain limited by the 157.00 mark. The latter should act as a key pivotal point, which, if broken decisively, could drag the USD/JPY pair to the 156.35 region ahead of the 156.00 mark. The downward trajectory could extend further towards the 155.35 region en route to the 155.00 psychological mark and the weekly swing low, around mid-154.00s, touched on Monday. 

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 weakest against the US Dollar.

 
USD
EUR
GBP
CAD
AUD
JPY
NZD
CHF

USD
 
0.49%
0.27%
0.90%
1.04%
-0.22%
1.04%
0.80%

EUR
-0.49%
 
-0.22%
0.41%
0.55%
-0.71%
0.56%
0.32%

GBP
-0.26%
0.22%
 
0.63%
0.77%
-0.49%
0.77%
0.54%

CAD
-0.91%
-0.42%
-0.64%
 
0.13%
-1.12%
0.14%
-0.12%

AUD
-1.05%
-0.56%
-0.77%
-0.14%
 
-1.26%
0.01%
-0.24%

JPY
0.22%
0.69%
0.47%
1.11%
1.22%
 
1.25%
1.01%

NZD
-1.06%
-0.56%
-0.80%
-0.15%
-0.02%
-1.28%
 
-0.25%

CHF
-0.80%
-0.31%
-0.54%
0.10%
0.24%
-1.03%
0.24%
 

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).

Central banks FAQs

Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.

A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.

A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.

Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.

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