Japanese Yen remains supported by reviving BoJ pivot bets, US data in focus

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  • The Japanese Yen strenghtens a bit following the release of warmer consumer inflation figures from Japan.
  • The USD hangs near a multi-week low amid sliding US bond yields and also exerts pressure on USD/JPY.
  • The downside seems limited ahead of this week’s key US macro releases, including the PCE Price Index.

The Japanese Yen (JPY) strenghtens during the Asian session on Tuesday following the release of slightly hotter-than-expected Japanese consumer inflation figures, which revived bets for an imminent shift in the Bank of Japan’s (BoJ) policy stance. This, along with a softer tone around the equity markets, is seen underpinning the safe-haven JPY amid speculations that Japanese authorities will intervene to stem any further weakness in the domestic currency.

Meanwhile, the US Dollar (USD) remains depressed for the second straight day amid a fresh leg down in the US Treasury bond yields. This contributes to the USD/JPY pair’s pullback from a two-week top touched on Monday. That said, a recession in Japan could force the BoJ to delay its plans to pivot away from ultra-lose policy settings and cap the JPY. This, along with hawkish Federal Reserve (Fed) expectations, should lend support to the USD and the currency pair. 

Bears might also refrain from placing aggressive bets around the USD/JPY pair and await the release of the key US Personal Consumption Expenditures (PCE) Price Index on Thursday for cues about the Fed’s rate-cut path. In the meantime, traders will take cues from the US macro data – Durable Goods Orders, the Conference Board’s Consumer Confidence Index and the Richmond Manufacturing Index – to grab short-term opportunities later this Tuesday.

Daily Digest Market Movers: Japanese Yen sticks to warmer domestic inflation data-inspired gains

  • The slightly higher-than-expected rates of inflation in Japan revived bets for an imminent shift in the Bank of Japan’s policy stance offers some support to the Japanese Yen.
  • Japan’s Statistics Bureau reported on Tuesday that the headline CPI rose by 0.1% MoM in January, though decelerated from the 2.6% YoY rate to 2.2% during the reported month.
  • Additional details of the report showed that the Core CPI, which excludes volatile fresh food items, climbed 2% YoY in January as compared to estimates for a 1.8% annual gain.
  • Furthermore, an underlying CPI reading that excludes both fresh food and energy slowed from the 3.7% YoY rate in December to 3.5%, or an 11-month low in January.
  • Meanwhile, the slowdown in inflation comes on top of an unexpected recession in Japan during the fourth quarter and allows the BoJ to stick to its ultra-loose policy.
  • The US Dollar languishes near its lowest level since February 2 touched amid a softer tone surrounding the US Treasury bond yields and weighs on the USD/JPY pair.
  • The markets recently pushed back expectations for the first rate cut by the Federal Reserve to June from May in the wake of sticky inflation and a resilient US economy.
  • Kansas City Fed President Jeffrey Schmid said that the US central bank should be patient and wait for convincing evidence that the inflation fight has been won.
  • Traders, however, seem reluctant to place aggressive bets and prefer to wait for more cues about the likely timing and the pace of interest rate cuts by the US central bank.
  • The market focus remains glued to the release of the US Personal Consumption Expenditures (PCE) Price Index on Thursday, which could provide a fresh impetus to the USD.
  • Traders on Tuesday will confront the release of US Durable Goods Orders, the Conference Board’s US Consumer Confidence Index and the Richmond Manufacturing Index.

Technical Analysis: USD/JPY remains depressed below mid-150.00s. downside potential seems limited

From a technical perspective, the near-term bias still seems tilted in favour of bullish traders, though it will be prudent to wait for some follow-through buying beyond the multi-month peak, around the 150.85-150.90 region, before positioning for further gains. Given that oscillators on the daily chart are holding comfortably in the positive territory and are still away from being in the overbought zone, the USD/JPY pair might then climb to the 151.45 hurdle. The momentum could extend towards the 152.00 neighbourhood, or a multi-decade peak set in October 2022 and retested in November 2023.

On the flip side, any meaningful pullback is likely to find decent support near the 150.00 psychological mark. This is followed by last week’s swing low, around the 149.70-149.65 region, which if broken could drag the USD/JPY pair further towards the 149.35-149.30 horizontal support. The downward trajectory could extend further towards the 149.00 mark en route to the 148.80-148.70 strong horizontal resistance breakpoint. The latter should act as a key pivotal point, which if broken decisively will negate the near-term positive outlook and pave the way for a further depreciating move.

Japanese Yen price today

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the weakest against the US Dollar.

USD   0.02% 0.06% 0.03% 0.08% -0.02% 0.11% 0.05%
EUR -0.02%   0.03% 0.00% 0.06% -0.03% 0.07% 0.03%
GBP -0.05% -0.04%   -0.03% 0.03% -0.07% 0.04% -0.01%
CAD -0.03% -0.02% 0.01%   0.01% -0.06% 0.07% 0.01%
AUD -0.07% -0.06% -0.03% -0.06%   -0.10% 0.02% -0.04%
JPY 0.02% 0.05% 0.08% 0.04% 0.10%   0.10% 0.06%
NZD -0.12% -0.07% -0.06% -0.08% -0.03% -0.14%   -0.03%
CHF -0.04% -0.02% 0.01% -0.02% 0.04% -0.06% 0.05%  

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.