Market Data 
- The Japanese Yen draws some support from intervention fears, albeit lacking bullish conviction.
- The US-Japan rate differential and a positive risk tone seem to undermine the safe-haven JPY.
- The USD/JPY bulls might wait for a break through a short-term range before placing fresh bets.
The Japanese Yen (JPY) ticks higher against its American counterpart during the Asian session on Thursday and looks to build on the previous day’s modest bounce from the vicinity of a multi-decade low. The increasing threat of intervention by Japanese authorities continues to lend some support to the domestic currency. Apart from this, the overnight US Dollar (USD) slump to a near one-week low further contributed to capping the USD/JPY pair near the 152.00 round-figure mark.
A report published by the Institute for Supply Management (ISM) on Wednesday showed that growth in the US service sector continued to lose momentum in March. This lifts bets that the Federal Reserve (Fed) will start cutting rates in June, triggering a sharp fall in the US Treasury bond yields, and weighing heavily on the Greenback. Meanwhile, the Bank of Japan’s (BoJ) cautious approach towards further policy tightening suggests that the gap between US and Japanese rates will stay wide.
This, along with a fresh leg up in the equity markets, should keep a lid on any meaningful appreciating move for the safe-haven JPY and limit the downside for the USD/JPY pair. Traders might also refrain from placing aggressive directional bets and prefer to wait for more cues about the Fed’s rate-cut path. Hence, the focus will be on the release of the US Nonfarm Payrolls (NFP) report on Friday. In the meantime, speeches by influential FOMC members might provide some impetus on Thursday.
Daily Digest Market Movers: Japanese Yen struggles for a firm near-term direction amid mixed fundamental cues
- Japanese government officials continued with their jawboning to defend the domestic currency, which, in turn, is seen lending some support to the Japanese Yen, though the upside potential seems limited.
- Japan’s former Vice Finance Minister for International Affairs Tatsuo Yamasaki said earlier this week that the country is ready to intervene in the currency market should the JPY weaken beyond its current range.
- The Automatic Data Processing reported on Wednesday that the US private sector employment rose by 184K in March against the 148 expected and the previous month’s upwardly revised reading of 155K.
- Separately, data published by the Institute for Supply Management showed that the US Services PMI dropped to 51.4 in March from the 52.6 previous, while the Prices Paid Index declined to 53.4 from 58.6.
- Federal Reserve Chairman Jerome Powell did not specify the timing or scale of the potential cuts and said on Wednesday that it would take a while to evaluate the current state of inflation before the interest rate cut.
- This comes after several Fed officials this week warned that the central bank was in no hurry to begin cutting rates, though the markets are still pricing in a greater chance of a move at the June policy meeting.
- The yield on the benchmark 10-year US government bond retreated after hitting a four-month high on Wednesday and prompted aggressive US Dollar selling, capping the USD/JPY pair ahead of the 152.00 mark.
- This boosted investors’ appetite for risker assets, which, along with the Bank of Japan’s (BoJ) dovish language, signaling that the next rate hike will be some time away, should keep a lid on the safe-haven JPY.
Technical Analysis: USD/JPY needs to find acceptance above the 152.00 mark for bulls to regain near-term control
From a technical perspective, the USD/JPY pair has been oscillating in a range over the past two weeks or so. Against the backdrop of a strong rally from the March swing low, this might still be categorized as a bullish consolidation phase. Moreover, oscillators on the daily chart are holding in the positive territory and are still far from being in the overbought zone, suggesting that the path of least resistance for spot prices is to the upside. That said, it will still be prudent to wait for a sustained breakout through the 152.00 round-figure mark before positioning for any further gains.
On the flip side, any meaningful slide might continue to find decent support near the 151.00 mark, or the lower end of the short-term trading range. A convincing break through the said handle, leading to a subsequent fall below the 150.80-150.75 horizontal resistance breakpoint, now turned support, has the potential to drag the USD/JPY pair to the next relevant support near the 150.25 region. This is closely followed by the 150.00 psychological mark, which if broken decisively might shift the bias in favor of bearish traders and pave the way for a further corrective decline towards the 149.35-149.30 region en route to the 149.00 mark.
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.
