- The Japanese Yen reverses an Asian session dip to a fresh multi-week low against the USD.
- The BoJ’s dovish outlook and a positive risk tone might cap the upside for the safe-haven JPY.
- Traders might also refrain from placing aggressive bets ahead of the crucial US NFP report.
The Japanese Yen (JPY) recovers slightly from a three-week low touched against its American counterpart during the Asian session on Friday. Some repositioning trade ahead of the US Nonfarm Payrolls (NFP) report holds back the JPY bears from placing fresh bets. This, along with subdued US Dollar (USD) price action, contributes to capping the USD/JPY pair’s intraday move up to the 146.00 neighborhood.
The upside for the JPY, however, seems limited on the back of the Bank of Japan’s (BoJ) dovish pause on Thursday. In fact, the BoJ slashed its forecasts for economic growth and inflation for the current year amid heightened trade uncertainty. This forced investors to scale back their bets on further interest-rate hikes. Apart from this, signs of easing US-China trade tensions could act as a headwind for the safe-haven JPY.
Japanese Yen bears turn cautious ahead of US NFP report; BoJ’s dovish outlook might cap the upside
- The Bank of Japan, as was widely anticipated, kept short-term interest rates steady at 0.5% and struck a cautious tone by slashing its growth and inflation forecasts. The central bank expects the Japanese economy to grow 0.5% in the current fiscal year versus its earlier projection of 1.1% in January and revised down its core CPI forecast from 2.4% to 2.2% for fiscal 2025.
- In the post-meeting press conference, BoJ Governor Kazuo Ueda said that the uncertainty from trade policies heightened sharply and the timing to achieve the 2% inflation goal will be somewhat delayed. This forced investors to scale back their bets for the next BoJ interest rate hike in June or July and dragged the Japanese Yen lower for the fourth straight day on Friday.
- The BoJ, however, reiterated that it remains committed to raising interest rates further if the economy and prices move in line with its forecasts. This, however, does little to impress the JPY bulls amid the latest optimism fueled by hopes for US-China trade negotiations, which remains supportive of a generally positive tone across the global equity markets.
- In fact, China’s state media said on Thursday that US President Donald Trump’s administration had used various channels to contact Beijing and had been seeking to initiate tariff negotiations. The statement follows Trump’s assertions that conversations between the two nations were already underway – a claim that China has publicly denied repeatedly.
- Japan’s Finance Minister Katsunobu Kato said this Friday that the country’s $1 trillion-plus in US Treasury holdings are among the tools available to use in trade negotiations with the US. Kato also said his meeting with US Treasury Secretary Scott Bessent last week did not discuss any desirable level of exchange rates or a possible framework to control currency moves.
- On the economic data front, a report published by Japan’s Statistics Bureau earlier today showed that the Unemployment Rate edged up to 2.5% in March from 2.4% in the previous month. However, Japan’s average Unemployment Rate in fiscal 2024 fell 0.1% from a year earlier, to 2.5%, marking the first improvement in two years on the back of a labor shortage.
- From the US, the Department of Labor reported on Thursday that initial jobless claims increased from 223,000 to 241,000 in the week ended April 26 – marking the highest level since February. Moreover, the US ISM Manufacturing PMI remained firmly in contraction territory for the second straight month, though it fell less than expected, from 49.0 to 48.7 in April.
- This comes on top of the disappointing US ADP report on private-sector employment and points to signs of a cooling labor market. Adding to this, a surprise contraction in the US GDP for the first time since 2022 and easing inflationary pressures continue to fuel speculations for more interest-rate cuts by the Federal Reserve later this year.
- The US Dollar, however, seems unaffected and looks to build on a three-day-old uptrend to a three-week top, which, in turn, pushes the USD/JPY pair to the 146.00 neighborhood during the Asian session on Friday. Traders now look forward to the closely-watched US Nonfarm Payrolls report for cues about the Fed’s policy outlook and some meaningful impetus.
USD/JPY move up falters near the 200-period SMA on the 4-hour chart, ahead of the 146.00 mark
From a technical perspective, the overnight breakout above the 38.2% Fibonacci retracement level of the March-April downfall and the 145.00 psychological mark was seen as a key trigger for bullish traders. Moreover, oscillators on the daily chart have just started gaining positive traction and suggest that the path of least resistance for the USD/JPY pair is to the upside. The subsequent move up beyond the 50% Fibo. level, however, stalls near the 200-period Simple Moving Average (SMA) on the 4-hour chart.
This makes it prudent to wait for some follow-through buying beyond the 146.00 mark before positioning for an extension of the recent goodish recovery move from a multi-month low. Spot prices might then climb to the 146.55-146.60 intermediate resistance before aiming to test the 61.8% Fibo. level, around the 147.00 neighborhood.
On the flip side, the 145.25 area could offer immediate support ahead of the 145.00 round figure. Any further corrective slide might now be seen as a buying opportunity and remain limited near the 144.30-144.25 region, or the 38.2% Fibo. level. A convincing break below the latter, however, might prompt some technical selling and drag the USD/JPY pair below the 144.00 mark, towards the mid-143.00s en route to the 143.20 area and eventually to sub-143.00 levels.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
