Home Forex Japanese Yen recovers further from multi-week low, upside seems capped ahead of BoJ decision

Japanese Yen recovers further from multi-week low, upside seems capped ahead of BoJ decision

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  • The Japanese Yen attracts some haven flows in the wake of rising geopolitical tensions.
  • Bets that the BoJ will stick to its dovish stance on Tuesday might cap any further gains.
  • Diminishing odds for more aggressive Fed policy easing should lend support to USD/JPY.

The Japanese Yen (JPY) kicks off the new week on a positive note and recovers further from its lowest level since November 28 touched on Friday against the US Dollar (USD). Traders, however, might refrain from placing aggressive directional bets and prefer to wait on the sidelines ahead of the highly-anticipated Bank of Japan (BoJ) policy decision on Tuesday. Heading into the key central bank event risk, growing acceptance that the Japanese central bank will show little desire towards ending negative rates or tweaking the Yield Curve Control (YCC) policy might continue to undermine the JPY. Apart from this, a generally positive tone around the equity markets could further dent the JPY’s relative safe-haven status.

The USD, on the other hand, is likely to draw support from reduced bets for an early rate cut by the Federal Reserve (Fed) and the upbeat US consumer sentiment data released on Friday. This, along with the upbeat US Retail Sales figures and a solid labor market report, indicated that the economy remained in good shape. Adding to this, hawkish remarks by influential Fed officials forced investors to further scale back their expectations for a more aggressive Fed policy easing in 2024. This remains supportive of elevated US Treasury bond yields and acts as a tailwind for the buck. Apart from this, the recent widening of the US-Japan rate differential suggests that the path of least resistance for the USD/JPY pair is to the upside.

Daily Digest Market Movers: Japanese Yen benefits from geopolitical tensions, hopes for a dovish BoJ cap gains

  • The Japanese Yen recovers further from a multi-week low, though might struggle amid expectations that the Bank of Japan will not pivot away from its ultra-dovish monetary policy stance on Tuesday.
  • The bets were reaffirmed by Friday’s data showing that the headline Consumer Price Index (CPI) in Japan and the core gauge dropped to the lowest level since June 2022 and July 2022, respectively.
  • Adding to this, the New Year’s Day earthquake in Japan and weak domestic wage growth data ensure that the BoJ is unlikely to exit the decade-long accommodative regime anytime soon.
  • The University of Michigan’s preliminary survey report showed that Friday’s US Consumer Sentiment Index rose from 69.7 in December to 78.8 this month, hitting the highest level since July 2021.
  • According to CME Group’s FedWatch Tool, traders now see May as the likely month for a Fed rate cut announcement, with chances for a move at the March monetary policy meeting falling to 50%.
  • Meanwhile, consumers’ inflation expectations over the next 12 months were the lowest in three years, reaffirming the view that the US central bank will start cutting rates in the first half of this year.
  • Apart from this, the risk of a further escalation of geopolitical tensions in the Middle East and China’s economic woes, which tend to benefit the safe-haven JPY, exerts some pressure on the USD/JPY pair.
  • The US launched an attack on a Houthi anti-ship missile on Sunday, its seventh round of strikes since the Iran-backed rebel group began targeting merchant vessels in the Red Sea.
  • There have been at least 140 attacks on U.S. bases since October 17 and seven in the past week, including the heavy military strikes on Ain al-Assad base in Iraq, which injured US and Iraqi soldiers.
  • Iran has vowed retaliation for a strike that killed five senior military officials in Damascus yesterday, an attack it blamed on Israel, which has neither confirmed nor denied involvement.
  • Israeli forces and Hamas fighters clashed in several places on Sunday, while Israeli planes resumed heavy bombing on Khan Younis in the southern Gaza Strip.
  • Israeli Prime Minister Benjamin Netanyahu appeared to rule out the two-state solution to the conflict and said that Israel must retain security control over all the territory west of Jordan.

Technical Analysis: USD/JPY to attract buyers near 100-day SMA resistance turned support around mid-147.00s

From a technical perspective, any subsequent downfall is more likely to find decent support near the 100-day Simple Moving Average (SMA), currently pegged near mid-147.00s. The said area could act as a pivotal point, which if broken decisively might prompt aggressive technical selling and drag the USD/JPY pair towards the 147.00 mark en route to the next relevant support near the 146.60-146.55 area.

On the flip side, the 148.00 round figure, followed by the 148.15-20 region now seems to act as an immediate hurdle ahead of the multi-week high, around the 148.80 zone touched on Friday. Some follow-through buying, leading to a subsequent strength beyond the 149.00 mark, will be seen as a fresh trigger for bullish traders. The USD/JPY pair might then aim to conquer the 150.00 psychological mark with some intermediate hurdle near the 149.70-149.75 area.

Japanese Yen price today

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the US Dollar.

USD   -0.09% -0.09% -0.05% -0.08% -0.17% -0.16% -0.08%
EUR 0.09%   0.00% 0.05% 0.00% -0.08% -0.07% 0.01%
GBP 0.09% 0.00%   0.04% -0.02% -0.09% -0.05% 0.00%
CAD 0.05% -0.03% -0.04%   -0.03% -0.12% -0.10% -0.04%
AUD 0.10% 0.02% 0.02% 0.07%   -0.06% -0.03% 0.03%
JPY 0.20% 0.09% 0.13% 0.12% 0.09%   0.04% 0.10%
NZD 0.14% 0.03% 0.05% 0.09% 0.05% -0.03%   0.05%
CHF 0.08% -0.02% 0.00% 0.03% -0.03% -0.11% -0.07%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

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.

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