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Japanese Yen plummets to fresh 34-year low against USD, around mid-155.00s

  • The Japanese Yen continues losing ground amid the divergent BoJ-Fed policy expectations.
  • The recent intervention warnings by Japanese authorities do little to provide any respite.
  • Traders now look to the US Q1 GDP report for some impetus ahead of the BoJ on Friday.

The Japanese Yen (JPY) extends its weakening trend further below the 155.00 psychological mark and drops to the lowest level since June 1990 against its American counterpart during the Asian session on Thursday. The wide interest-rate differential between Japan and the United States (US) is seen as a key factor that continues to undermine the JPY. The move, however, fuels the risk of a potential intervention by Japanese authorities, which, in turn, might hold back the JPY bears from placing fresh bets. Traders might also prefer to move to the sidelines ahead of the crucial Bank of Japan (BoJ) monetary policy decision on Friday.

The Japanese central bank is widely expected to leave policy settings, and bond purchase amounts unchanged after raising interest rates in March for the first time since 2007. In contrast, investors seem convinced that the Federal Reserve (Fed) may delay cutting interest rates in the wake of still sticky inflation, which remains supportive of elevated US Treasury bond yields and acts as a tailwind for the US Dollar (USD). This, in turn, suggests that the path of least resistance for the USD/JPY pair remains to the upside. 

Daily Digest Market Movers: Japanese Yen bears not ready to give up despite intervention warnings

Expectations that the difference in interest rates between the US and Japan will stay wide drag the Japanese Yen to a fresh multi-decade low on Thursday, fueling speculation about possible intervention by Japanese authorities.
Japanese officials have repeatedly warned that they will take necessary action to address excessive moves in the yen if needed and have emphasized a focus on the pace of the currency’s depreciation rather than a precise price level. 
Moreover, Bank of Japan Governor Kazuo Ueda has said the central bank may hike rates again if the fall in the domestic currency significantly pushes up inflation, which might hold back the JPY bears from placing fresh bets.
Japan’s Liberal Democratic Party (LDP) executive, Takao Ochi, said on Wednesday that the JPY’s fall towards the 160 against its American counterpart may be deemed excessive and could prompt policymakers to consider some action. 
Japan’s Finance Minister Shunichi Suzuki refrained from commenting on specific FX levels, while Chief Cabinet Secretary Yoshimasa Hayashi reiterated that it is important for currencies to move in a stable manner reflecting fundamentals.
Investors keenly await the outcome of the highly-anticipated two-day BoJ policy meeting on Friday for cues on when the central bank will raise interest rates again, which, in turn, will determine the near-term trajectory for the JPY.
The US Census Bureau reported on Wednesday that Durable Goods Orders increased by 2.6% in March as compared to the previous month’s downwardly revised 0.7% rise, while new orders excluding transportation rose 0.2%
This comes on the back of strong US consumer inflation figures and reaffirmed expectations that the Federal Reserve will not begin its rate-cutting cycle before September, which acts as a tailwind for the US Dollar and the USD/JPY pair. 
Traders now look forward to the release of the Advance US GDP report, which is expected to show that growth in the world’s largest economy slowed to a 2.5% annualized pace during the first quarter of 2024 from the 3.4% previous. 
Apart from this, the US Personal Consumption Expenditures (PCE) Price Index on Friday will be looked upon for cues about the Fed’s rate-cut path and determining the next leg of a directional move for the buck and the currency pair. 

Technical Analysis: USD/JPY could consolidate before the next leg up towards the 156.00 mark

From a technical perspective, the overnight breakout through a short-term trading range and a subsequent strength beyond the 155.00 mark could be seen as a fresh trigger for bullish traders. That said, the Relative Strength Index (RSI) on the daily chart remains in the overbought territory, warranting some caution amid intervention fears and ahead of the BoJ event risk. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for the next leg of a positive move. Nevertheless, the USD/JPY pair seems poised to prolong its recent well-established uptrend from the March swing low and aim to conquer the 156.00 round figure.

On the flip side, any meaningful corrective slide is likely to attract fresh buyers and remain limited near the 154.90-154.85 region. This is followed by the 154.55-154.45 support zone, which, if broken, might prompt some technical selling and drag the USD/JPY pair to the 154.00 round-figure mark. The downward trajectory could extend further towards last Friday’s low, around the 153.60-153.55 area.

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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