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Japanese Yen fades possible intervention-led gains, slides below 156.00 against USD

  • The Japanese Yen rallied on Wednesday amid speculations of another intervention by authorities. 
  • The momentum, however, runs out of steam on the back of the divergent BoJ-Fed policy outlooks.
  • Traders now look to the second-tier US data for some impetus ahead of the NFP report on Friday.

The Japanese Yen (JPY) surged to over a two-week high against its American counterpart on Wednesday amid speculations that Japan’s financial authorities intervened again, for a second time this week, to prop up the domestic currency. This came on the back of the post-FOMC US Dollar (USD) selling and dragged the USD/JPY pair to the 153.00 mark. The JPY, however, trimmed a part of its strong intraday gains and continued losing ground through the Asian session on Thursday, pushing the currency pair back above the 156.00 round figure. 

The Bank of Japan’s (BoJ) decision to keep interest rates near zero and indication that it will continue buying government bonds in line with the guidance made in March marks a big divergence in comparison to the Federal Reserve’s (Fed) hawkish signal. In fact, the US central bank said on Wednesday that it wants to gain greater confidence that inflation will continue to fall before cutting rates. This, along with the emergence of some USD buying, lends support to the USD/JPY pair amid a positive risk tone, which undermines the safe-haven JPY. 

Traders now look to the US economic docket, featuring the release of Challenger Job Cuts, the usual Weekly Initial Jobless Claims and Trade Balance data for some impetus later during the early North American session. The focus, however, will remain glued to the closely-watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday. 

Daily Digest Market Movers: Japanese Yen fails to capitalize on Wednesday’s possible intervention-led strong move up

A likely Japanese Yen buying directed by Japan’s Ministry of Finance triggered a steep USD/JPY decline to over a two-week low during the late US session on Wednesday, though the momentum falters near the 153.00 mark.
Japan’s top currency diplomat Masato Kanda declined to confirm if authorities had stepped into the FX market to support the domestic currency and said that they will disclose intervention data at the end of this month. 
Minutes of the Bank of Japan March policy meeting revealed this Thursday that the central bank must continue to support the economy from a financial standpoint to achieve sustained, domestic demand-driven recovery. 
The lack of change in forward guidance by the Federal Reserve on Wednesday, signaling that it is leaning toward reductions in borrowing costs later this year, was perceived as dovish and led to the overnight US Dollar slump. 
In the post-meeting press conference, Fed Chair Jerome Powell noted that inflation has eased substantially over the past year but it’s still too high and that further progress on inflation is not assured as the path is uncertain. 
Fed fund futures traders are now pricing in 35 basis points of easing this year, up from 29 bps before the statement, which is still less than three 25 bps cuts projected by the US central bank and helps revive the USD demand.
A positive tone around the US equity markets further contributes to driving flows away from the safe-haven JPY and provides an additional boost to the USD/JPY pair on Thursday ahead of the second-tier US economic releases.
The market attention, meanwhile, remains on the US jobs report on Friday, which will now play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the currency pair.

Technical Analysis: USD/JPY needs to break through the 50% Fibo. hurdle, around 156.50 for bulls to seize intraday control

From a technical perspective, the overnight bounce from the 200-period Simple Moving Average on the 4-hour chart and the subsequent move beyond the 38.2% Fibonacci retracement level of this week’s sharp pullback from a multi-decade high favor bullish traders. That said, mixed oscillators on hourly/daily charts warrant some caution before positioning for any further intraday appreciating move, suggesting that the USD/JPY pair might confront some resistance near the 50% Fibo. level, around the 156.55 region. Some follow-through buying, however, will suggest that the recent corrective slide from the all-time peak has run its course and pave the way for additional gains.

On the flip side, weakness back below the 155.70 area could drag the USD/JPY pair back towards the 155.00 psychological mark en route to the 154.50-154.45 support zone. Failure to defend the latter might expose the Asian session low, around the 153.00 round figure, with some intermediate support near the 154.00 mark and the 153.60 region.

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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