Created
: 2024.04.16
2024.04.16 11:45
The Japanese Yen (JPY) struggles to gain any meaningful traction during the Asian session on Tuesday and languishes near the 34-year low touched against its American counterpart the previous day. A report on Monday suggested that the Bank of Japan (BoJ) will place less emphasis on inflation and shift to a more discretionary approach in setting monetary policy. Meanwhile, BoJ Governor Kazuo Ueda said that after ending negative rates in March, the central bank would revert to a normal monetary policy that lets various data guide the future rate hike path. This adds to the BoJ's uncertain outlook for future rate hikes and continues to undermine the JPY.
In contrast, the markets pushed back expectations for the first interest rate cut by the Federal Reserve (Fed) following the release of the hotter-than-expected US consumer inflation figures for March. This suggests that the large rate differential between the two countries will stay for some time, which, along with a bullish US Dollar (USD), acts as a tailwind for the USD/JPY pair. Meanwhile, the recent jawboning by Japanese authorities and a softer risk tone could help limit losses for the safe-haven JPY. This, in turn, might hold back traders from placing fresh bullish bets around the currency pair amid overbought technical indicators on the daily chart.
From a technical perspective, the recent breakout through a short-term trading range hurdle near the 152.00 round figure and the subsequent move up was seen as a fresh trigger for bullish traders. That said, the Relative Strength Index (RSI) on the daily chart is flashing overbought conditions, making it prudent to wait for some near-term consolidation or a modest pullback before positioning for any further gains. Meanwhile, any meaningful corrective slide below the 154.00 mark is likely to attract fresh buyers and remain limited near the 153.40-153.35 region.
This is followed by the overnight swing low or levels just below the 153.00 mark. Some follow-through selling could pave the way for deeper losses and drag the USD/JPY pair further toward the 152.60-152.55 zone en route to the 152.00 resistance-turned-support. On the flip side, momentum beyond the mid-154.00s has the potential to lift spot prices further towards the 155.00 psychological mark.
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.
Created
: 2024.04.16
Last updated
: 2024.04.16
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