• The Japanese Yen drifts lower for the third successive day amid dovish BoJ expectations.
  • Reduced bets for an early Fed rate cut lend support to the USD and the USD/JPY pair.
  • Traders now look forward to the US Retail Sales data and Fedspeak for a fresh impetus.

The Japanese Yen (JPY) prolongs its depreciating move against the US Dollar (USD) for the third straight day and plummets to the lowest level since early December heading into the European session on Wednesday. Expectations that the Bank of Japan (BoJ) will delay the plan to pivot away from its ultra-dovish stance in the wake of a devastating earthquake in central Japan, falling rates of inflation in Tokyo and weak wage data continue to undermine the JPY. Moreover, the USD buying remains unabated in the wake of the overnight hawkish remarks by Federal Reserve (Fed) Governor Christopher Waller forced investors to further scale back their expectations for a rate cut in March. 

Meanwhile, the prospects for a less aggressive easing by the US central bank remain supportive of elevated US Treasury bond yields. The resultant widening of the US-Japan rate differential turns out to be another factor undermining the JPY. Even a softer risk tone – led by geopolitical tensions and China’s economic woes – does little to benefit the safe-haven JPY or hinder the USD/JPY pair’s positive move beyond the 100-day Simple Moving Average (SMA). Market participants now look forward to the US economic docket, featuring the release of monthly Retail Sales and Industrial Production figures, for short-term trading opportunities later during the early North American session this Wednesday.

Traders will further take cues from scheduled speeches by FOMC members, which, along with the US bond yields, will drive the USD demand and provide some meaningful impetus to the USD/JPY pair. The focus will then shift to the release of Japan’s National Core CPI on Friday, which will play a key role in influencing the JPY ahead of the BoJ decision next Tuesday. The aforementioned fundamental backdrop suggests that the path of least resistance for the currency pair is to the upside and supports prospects for an extension of the uptrend witnessed since the beginning of this month. 

Daily Digest Market Movers: Japanese Yen is pressured by rising bets for BoJ inaction in January

  • The Japanese Yen continues to be weighed down by the fact that the chances for the Bank of Japan to end its negative rate policy have faded in the wake of domestic factors.
  • Against the backdrop of the New Year’s Day earthquake in Japan, falling rates of inflation in Tokyo and weaker wage data ensure that BoJ will maintain the status quo.
  • The JPY failed to gain any respite from a generally weaker tone around the equity markets and persistent geopolitical tensions stemming from the Israel-Hamas war.
  • In the latest development, the US carried out another airstrike targeting a Houthi missile facility in Yemen, noting a threat to merchant vessels and US Navy ships.
  • The US Dollar remains well supported by reduced bets for a March interest rate cut by the Federal Reserve and provides an additional boost to the USD/JPY pair.
  • Fed Governor Christopher Waller said on Tuesday that the recent data allows the central bank to consider policy rate cuts, but only if inflation continues to moderate.
  • Waller added that the Fed needs to be cautious and cannot rush into rate cuts as the economy remains in good shape, pushing the US Treasury bond yields sharply higher.
  • The yield on the benchmark 10-year US government bond holds steady above the 4.0% threshold and is seen as another factor acting as a tailwind for the Greenback.
  • The US macro data due later this Wednesday is expected to show that monthly Retail Sales grew by 0.4% in December, while Industrial Production remained flat.
  • Fed Governors Michael Barr and Michelle Bowman’s scheduled speeches during the North American session might further contribute to influencing the USD.

Technical Analysis: USD/JPY seems poised to climb further, 147.50 confluence breakout in play

From a technical perspective, the USD/JPY pair pauses near the 147.45-147.50 confluence, comprising the 100-day SMA and the 61.8% Fibonacci retracement level of the November-December downfall. A sustained strength beyond the said barrier will be seen as a fresh trigger for bullish traders and validate the near-term constructive outlook. Given that oscillators on the daily chart are holding in the positive territory, spot prices might then aim to surpass the 148.00 round figure and test the 148.50 hurdle (November 30 peak). The momentum could extend further towards the 148.80-148.85 region en route to the 149.00 mark and the 149.70-149.75 supply zone and the 150.00 psychological mark.

On the flip side, any corrective decline back below the 147.00 mark is likely to attract fresh buyers near the 146.65 horizontal zone. This should help limit the downside for the USD/JPY pair near the 146.10-146.00 region. The latter should act as a key pivotal point, which if broken decisively will negate the positive bias and prompt aggressive technical selling. The USD/JPY pair could then slide to the 145.45-145.40 intermediate support before dropping to sub-145.00 levels en route to the 144.60 support, the 144.00 mark and the 200-day SMA, currently around the 143.75-143.70 region.

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 .

USD 0.03%0.01%-0.01%-0.01%-0.01%-0.08%0.02%
EUR-0.03% -0.03%-0.04%-0.03%-0.02%-0.09%-0.01%
GBP-0.01%0.02% -0.03%-0.02%-0.02%-0.08%0.00%
CAD0.01%0.04%0.02% 0.00%0.01%-0.07%0.01%
AUD0.01%0.01%0.02%0.00% 0.01%-0.07%0.02%
JPY-0.05%-0.01%-0.03%-0.06%-0.05% -0.12%-0.03%
NZD0.08%0.08%0.08%0.06%0.06%0.07% 0.09%
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).


What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

By Admin

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