Market Data 
- The Japanese Yen struggles to register any recovery amid dovish BoJ expectations.
- The lack of action by Japanese authorities and softer Tokyo CPI also exert pressure.
- Traders keenly await the crucial BoJ decision ahead of the US PCE Price Index data.
The Japanese Yen (JPY) languishes near a multi-decade low against its American counterpart during the Asian session on Friday as traders keenly await the outcome of the highly-anticipated Bank of Japan (BoJ) policy meeting. After the historic decision in March to raise short-term interest rates for the first time in 17 years, the central bank is widely expected to leave policy settings and bond purchase amounts unchanged amid signs that inflation in Japan is cooling. This puts the market focus squarely on the quarterly inflation and growth forecasts, which will play a key role in influencing the near-term JPY price dynamics.
In the meantime, the lack of any decisive action by Japanese authorities to support the domestic currency fails to provide any respite to the JPY bulls. Meanwhile, the US Dollar (USD) hangs near a two-week low touched on Thursday in reaction to data showing a sharp slowdown in the US economic growth, which, in turn, caps the upside for the USD/JPY pair. That said, an unwelcome pickup in inflation reaffirmed market bets that the Federal Reserve (Fed) will keep interest rates higher for longer, which should act as a tailwind for the currency pair ahead of the US Personal Consumption Expenditures (PCE) Price Index.
Daily Digest Market Movers: Japanese Yen bulls remain on the sidelines ahead of BoJ and the key US macro data
- Government data showed on Friday that consumer inflation in Tokyo decelerated sharply in April and dashed hopes for any hawkish signals from the Bank of Japan, undermining 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.
- From the US, the Commerce Department reported on Thursday that Gross Domestic Product 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.
- Meanwhile, traders now seem reluctant and prefer to wait for the crucial BoJ policy decision, which will be followed by the release of the US Personal Consumption Expenditures (PCE) Price Index.
Technical Analysis: USD/JPY is likely to confront stiff resistance near 156.00 amid overbought RSI on the daily chart
From a technical perspective, momentum beyond the overnight swing high, around the 155.75 zone, has the potential to lift the USD/JPY pair to the 156.00 mark. The latter should act as a strong barrier and cap the upside amid the extremely overbought Relative Strength Index (RSI) on the daily chart, which, in turn, warrants some caution for bullish traders.
On the flip side, the 155.35-155.30 region is likely to protect the immediate downside ahead of the 155.00 psychological mark. This is closely followed by a short-term trading range resistance breakpoint, around the 154.70 area, below which the USD/JPY pair could drop to the 154.00 round figure en route to last Friday’s swing low, around the 153.60-153.55 zone.
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.
