Japanese Yen remains heavily offered despite possible intervention attempt

• The Japanese Yen weakens across the board after BoJ announced its policy decision. 
• A shortlived spike in the Yen may be testament to an attempt by the Japanese authorities to intervene.
• Traders now look forward to the US PCE Price Index for some meaningful impetus.

The Japanese Yen (JPY) plummets to a fresh multi-decade low, beyond the 156.00 mark against its American counterpart after the Bank of Japan (BoJ) decided to leave policy settings unchanged on Friday. The Yen failed to gain any respite from BoJ Governor Kazuo Ueda’s remarks during the post-meeting press conference. Despite what looks like an intervention attempt on Thursday morning the JPY only temporarily recovered and a heavy selling bias remains. The BoJ’s uncertain rate outlook amid signs that inflation in Japan is cooling, and a generally positive tone around the equity markets turn out to be key factors undermining the safe-haven JPY. 

Apart from this, expectations that the interest rate differential between Japan and the United States (US) will remain wide for some time suggest that the path of least resistance for the JPY is to the downside. Meanwhile, the US Dollar (USD) attracts fresh buyers and reverses a part of the previous day’s weaker US GDP print-inspired slide to a two-week low amid bets that the Federal Reserve (Fed) will keep rates higher for longer. This lends additional support to the USD/JPY pair as traders now look to the release of the US Personal Consumption Expenditures (PCE) Price Index for cues about the Fed’s rate-cut path and before positioning for the next leg of a directional move. 

Daily Digest Market Movers: Japanese Yen continues losing ground as bulls  seem unimpressed by BoJ’s policy outlook

• Government data showed on Friday that consumer inflation in Tokyo decelerated sharply in April, which, along with the Bank of Japan’s decision to maintain the status quo, undermines the Japanese Yen. 
• The headline Tokyo Consumer Price Index (CPI) rose 1.8% YoY in April, while core CPI (ex-Fresh Food, Energy) increased by 1.8% YoY during the reported month, both missing consensus estimates. 
• A core CPI gauge that excludes both fresh food and energy prices and is closely watched by the BoJ as a gauge of underlying inflation fell below the 2% target for the first time since September 2022. 
• The Japanese central bank, as was widely anticipated, left its short-term interest rates unchanged at 0%-0.10% and expects accommodative monetary conditions to continue for the time being.
• The BoJ, meanwhile, lowered its economic growth forecast for the current fiscal year 2024 to 0.8% from the 1.2% estimated previously, while CPI ex fresh food for FY 2024 is seen at 2.8% vs 2.4% prior.
• In the post meeting press conference, BoJ Governor Kazuo Ueda noted that the chance of a prolonged weakness in the JPY is not zero and that the achievement of 2% inflation target is extremely close. 
• The US Commerce Department reported on Thursday that the world’s largest economy grew at a 1.6% annualized rate in the January-March period, marking the weakest reading since mid-2022. 
• This pointed to a significant loss of momentum at the start of 2024, though was offset by a rise in the underlying inflation, which reaffirmed bets that the Federal Reserve will keep rates higher for longer. 
• A Jiji report indicated that the BoJ might buy fewer bonds, pushing Japan’s five-year bond yield to the highest level since April 2011, albeit does little to provide any meaningful boost to the JPY. 
• Japan’s Finance Minister Shunichi Suzuki reiterated that he is closely monitoring FX fluctuations and that he will prepare to take full steps on the currency, though declined to comment on details of the policy. Signs over the last few hours of attempts to prop up the Yen appear to have failed with USD/JPY returning to its session highs. 

Technical Analysis: USD/JPY needs to pause and consolidate before the next leg up amid extremely overbought RSI

From a technical perspective, momentum beyond the 156.00 mark could be seen as a fresh trigger for bullish traders and supports prospects for additional gains. That said, the extremely overbought Relative Strength Index (RSI) on the daily chart makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for the next leg of a positive move. 

Meanwhile, any corrective decline below the 156.00 mark now seems to find decent support near the 155.35-155.30 region. This is followed by the 155.00 psychological mark and a short-term trading range resistance breakpoint, around the 154.70 area. A break below the latter has the potential to drag the USD/JPY pair to the 154.00 round figure en route to last Friday’s swing low, around the 153.60-153.55 zone.