Created
: 2024.05.01
2024.05.01 11:41
The Japanese Yen (JPY) registered heavy losses against its American counterpart on Tuesday and reversed a major part of the previous day's sharp gains led by a possible intervention by Japanese authorities. The main driver of the JPY weakness is the interest-rate differential between Japan and the United States (US), which is expected to remain wide for some time. This, along with a goodish pickup in the US Dollar (USD) demand, provided an additional lift to the USD/JPY pair and contributed to the strong intraday move up.
The USD buying remained unabated during the Asian session on Wednesday amid growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer, bolstered by incoming US macro data that pointed to still sticky inflation. That said, the risk-off impulse - as depicted by the overnight slump in the US equity markets and a sea of red across the Asian equity markets - lends some support to the safe-haven JPY. This, in turn, acts as a headwind for the USD/JPY pair ahead of the crucial FOMC policy decision later today.
From a technical perspective, the suspected intervention-inspired slump on Monday showed some resilience below the 200-hour Simple Moving Average (SMA). The subsequent move up, along with positive oscillators on hourly charts, suggests that the path of least resistance for the USD/JPY pair is to the upside. Bulls, however, might prefer to wait for a move beyond the 158.00 mark, or the 50% Fibonacci retracement level of the early week steep decline, before placing fresh bets. Spot prices might then surpass an intermediate hurdle near the 158.40-158.45 region and aim to reclaim the 159.00 mark.
On the flip side, any downfall below the 157.50-157.45 immediate support might now attract fresh buyers and remain limited by the 157.00 mark. The latter should act as a key pivotal point, which, if broken decisively, could drag the USD/JPY pair to the 156.35 region ahead of the 156.00 mark. The downward trajectory could extend further towards the 155.35 region en route to the 155.00 psychological mark and the weekly swing low, around mid-154.00s, touched on Monday.
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
: 2024.05.01
Last updated
: 2024.05.01
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