- The Japanese Yen slightly recovers from its multi-decade low of 160.87 against the US Dollar seen on Wednesday.
- The Yen finds some support after comments from Japanese Finance Minister Shun’ichi Suzuki.
- The US Dollar Index falls back below 106.00 ahead of US Q1 GDP, Durable Goods Orders and weekly Jobless Claims.
The Japanese Yen (JPY) is licking its wounds it incurred after its steep decline Thursday when markets started playing a chicken game with the Japanese government. The Japanese Yen sank to 160.87 against the US Dollar (USD), even lower than the level of 160.20 seen at the end of April right before the Japanese Ministry of Finance intervened and pushed the USD/JPY back to 151.95. Early comments during the Asian session on Thursday from Japanese Finance Minister Shun’ichi Suzuki seemingly had more impact than the comments from Masato Kanda, Vice Minister for International Affairs, on Wednesday when the actual move occurred.
Meanwhile, the US Dollar Index (DXY) – which gauges the value of the US Dollar against a basket of six foreign currencies – somewhat looking for direction ahead of a packed economic calendar. Besides the final reading of the US Gross Domestic Product (GDP) print for Q1, traders will also wait for the Durable Goods Orders numbers for May. As each week, the Initial and Continuing Jobless Claims are set to be released as well on Thursday, making it a very charged US session.
Daily digest market movers: US data ahead
- At 01:30 GMT, Japanese Finance Minister Shun’ichi Suzuki commented on the recent moves in the Japanese Yen. Suzuki said they are watching currencies closely and will act when needed, though Suzuki declined to comment on specific FX levels
- At 12:30 GMT, most of the Thursday’s important data points will all come out at the same time:
- US Gross Domestic Product numbers for Q1:
- Headline GDP is expected to head to 1.4% from 1.3%.
- Headline Personal Consumption Expenditures (PCE) Prices for the quarter should remain stable at 3.3%.
- Core PCE should remain as well stable at 3.6%.
- Durable Goods Orders for May:
- Headline Durable Goods Orders are expected to contract by 0.1% from the prior positive 0.6% in April.
- Durable Goods Orders ex Transportation are expected to slide lower to 0.2% from 0.4% in April.
- Initial Jobless Claims for the week ending June 21 are expected to remain rather stable at 236,000 from the previous week’s reading of 238,000. Continuing Claims are expected to remain stuck with a marginal move from 1,828,000 to 1,820,000.
- US Gross Domestic Product numbers for Q1:
- Equities are having issues again on Thursday and look to be on track for a negative week overall. US futures are all down less than half a percentage.
- The CME Fedwatch Tool is broadly backing a rate cut in September despite recent comments from Federal Reserve (Fed) officials. The odds now stand at 56.3% for a 25-basis-point cut. A rate pause stands at a 37.7% chance, while a 50-basis-point rate cut has a slim 6.0% possibility.
- The Overnight indexed Swap curve for Japan shows a 64.0% chance of a rate hike on July 31, and a smaller 52.8% chance for a hike on September 20.
- The US 10-year benchmark rate trades near the weekly high at 4.33%.
- The benchmark 10-year Japan Treasury Note (JGB) trades around 1.07%, nearing highs not seen since 2011.
USD/JPY Technical Analysis: Japan betting on weak US Data
The USD/JPY is trading off its multi-decade high, freshly printed on Wednesday at 160.81. For now, the words from Japanese Finance Minister Shun’ichi Suzuki are having a bit of an impact, though the question is how long the impact will last as the attention will start to die down. The Japanese government is playing a dangerous game, though, seeming to bet on weak US data on Thursday and Friday, which would trigger a pullback in the DXY and might see Yen strengthen without aid from the Japanese government.
Although the Relative Strength Index (RSI) is overbought in the daily chart, a correction could soon occur. If weaker US data, when that plays out and is undoubtedly not a certainty, will be enough to drive USD/JPY down to 151.91 remains to be seen. Instead, look at the 55-day Simple Moving Average (SMA) at 156.39 and the 100-day SMA at 153.69 for traders to quickly build a pivot on and try to test highs again, testing the Japanese deep pockets again.
USD/JPY: Daily Chart
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
