Home News Japanese Yen remains on the back foot against USD, lacks follow-through ahead of US GDP

Japanese Yen remains on the back foot against USD, lacks follow-through ahead of US GDP

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  • The Japanese Yen edges lower against the USD on Thursday, though the downside seems limited. 
  • The risk-on mood and the recent widening of the US-Japan rate differential undermine the JPY.
  • The BoJ’s hawkish tilt could act as a tailwind for the JPY amid a subdued US Dollar price action.
  • Traders look to the US Q2 GDP ahead of key inflation figures from Japan and the US on Friday.

The Japanese Yen (JPY) drifts lower against its American counterpart during the Asian session on Thursday and retreats further from over a one-week high touched the previous day. The underlying bullish sentiment across the global equity markets, along with the recent widening of the US-Japan rate differential, turn out to be key factors driving flows away from the safe-haven JPY. The downtick could further be attributed to some repositioning trade ahead of the Advance fourth-quarter GDP growth figures from the US, due for release later during the North American session.

Meanwhile, the Bank of Japan (BoJ) sounded a bit hawkish earlier this week and suggested that conditions for phasing out stimulus and negative interest rates were falling into place. This, along with the risk of a further escalation of military action in the Middle East, should limit losses for the JPY. The US Dollar (USD), on the other hand, remains below its highest level since December 13 touched on Tuesday amid the uncertainty over the timing of when the Federal Reserve (Fed) will start cutting interest rates. This might further contribute to capping the upside for the USD/JPY pair. 

Traders might also refrain from placing aggressive directional bets ahead of the crucial inflation figures from Japan and the US on Friday. Japan’s Statistics Bureau is scheduled to publish the Tokyo Core CPI report during the Asian session. The market focus, however, will remain glued to the US Personal Consumption Expenditures (PCE) Price Index, which might influence market expectations about the Fed’s future policy decisions. This, in turn, will play a key role in driving the USD demand in the near term and determining the next leg of a directional move for the USD/JPY pair. 

Daily Digest Market Movers: Japanese Yen weakens amid some repositioning trade ahead of the US GDP

  • The Japanese Yen moves away from over a one-week high touched on Wednesday and is undermined by a combination of factors, though the Bank of Japan’s hawkish tilt should act as a tailwind.
  • The upbeat market sentiment gets an additional lift after the People’s Bank of China announced a reduction in the Reserve Requirement Ratio by 50 bps starting from February 5 to boost the economy.
  • The yield on the benchmark 10-year US government bond shot back closer to the monthly top in reaction to the upbeat US data, which lends support to the US Dollar and the USD/JPY pair.
  • The S&P Global flash US Manufacturing PMI rebounded from 47.9 to a 15-month high of 50.3 in January, while the gauge for the services sector climbed to 52.9, or the highest reading since last June.
  • Furthermore, the flash US Composite PMI Output Index increased to 52.3 this month, or the highest since last June, suggesting that the world’s largest economy kicked off 2024 on a stronger note.
  • This comes on top of the upbeat consumer spending and labor market data released last week, forcing investors to further scale back their expectations for an early interest rate cut by the Federal Reserve.
  • BoJ Governor Kazuo Ueda laid the groundwork for monetary policy normalisation on Tuesday and said that the likelihood of sustainably achieving the 2% inflation target was gradually increasing.
  • The head of Japan’s biggest business lobby Keidanren called for wage hikes this year that exceed the inflation rate, paving the way for the BoJ to pivot away from its ultra-easy monetary policy settings.
  • A mild verbal intervention by Japan’s top currency diplomat Masato Kanda does little to impress the JPY bulls or provide any impetus, though might contribute to keeping a lid on the USD/JPY pair. 
  • Kanda said that the government is carefully watching impact of central bank decision on financial markets and it is important for currency exchange rates to move stably reflecting economic fundamentals.
  • Traders now look to the Advance US Q4 GDP report, which is expected to show that growth in the world’s largest economy decelerated to a 2% annualized pace from 4.9% in the previous quarter.
  • Thursday’s US economic docket also features the release of Durable Goods Orders and the usual Weekly Initial Jobless Claims, which might provide some impetus to the buck and the USD/JPY pair.
  • The market attention will then shift to the release of the Tokyo core CPI and the US Personal Consumption Expenditures Price Index data – the Fed’s preferred inflation gauge – on Friday.

Technical Analysis: USD/JPY manages to hold its neck above 100-day SMA, lacks bullish conviction

From a technical perspective, this week’s repeated failures to find acceptance below the 100-day Simple Moving Average (SMA) and the subsequent rebounds suggest that the path of least resistance for the USD/JPY pair is to the upside. That said, any further move up is likely to confront some resistance near the 148.00 round figure ahead of the 148.20-148.25 region. The next relevant hurdle is pegged near the 148.80 region, or a multi-week high touched last Friday, which if cleared will be seen as a fresh trigger for bullish traders. Given that oscillators on the daily chart are holding comfortably in the positive territory, spot prices might then aim to surpass an intermediate hurdle near the 149.30-149.35 zone and reclaim the 150.00 psychological mark.

On the flip side, weakness below the 100-day SMA, currently around the 147.55 region, might continue to attract some buyers near the 147.00 mark. This should help limit the downside for the USD/JPY pair near the 146.45 zone, or the weekly trough touched the previous day. Some follow-through selling, however, will negate the positive bias and shift the near-term bias in favour of bearish traders, paving the way for a slide towards testing the 146.10-146.00 horizontal support. The downward trajectory could extend further towards the 145.30-145.25 intermediate support en route to the 145.00 psychological mark.

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 Swiss Franc.

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

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).

Bank of Japan FAQs

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.

The Bank’s massive stimulus 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 policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.

A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.

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