Japanese Yen recovers early lost ground to multi-week low against USD, lacks follow-through
|- The Japanese Yen stages a modest recovery from its lowest level since November 28.
- Rising bets that the BoJ will maintain the status quo in January favour the JPY bears.
- A positive risk tone to undermine the safe-haven JPY and lend support to USD/JPY.
The Japanese Yen (JPY) recovers a bit after falling to its lowest level since November 28 against the US Dollar (USD), though any meaningful appreciating move still seems elusive. Data released earlier today showed that inflation in Japan eased as expected. This comes on top of sluggish wage growth data released last week and ensures that the Bank of Japan (BoJ) is unlikely to exit negative interest rates at its policy meeting next week. This, along with a generally positive tone around the equity markets, should act as a headwind for the safe-haven JPY.
Meanwhile, reduced bets for an early interest rate cut by the Federal Reserve (Fed) continue to push the US Treasury bond yields higher, widening the US-Japan rate differential. This might further contribute to capping gains for the JPY, which, along with the underlying bullish tone surrounding the USD, supports prospects for an extension of the USD/JPY pair's near-three-week-old uptrend. Hence, any corrective decline might still be seen as an opportunity for bullish traders and is more likely to remain limited ahead of the BoJ meeting on January 22-23.
In the meantime, traders on Friday will take cues from the US economic docket, featuring the Preliminary Michigan Consumer Sentiment and Inflation Expectations, along with Existing Home Sales data later during the early North American session. Apart from this, speeches by influential FOMC members and the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/JPY pair on the last day of the week. Nevertheless, the JPY seems poised to end deep in the red against its American counterpart for the third straight week.
Daily Digest Market Movers: Japanese Yen attracts some haven flows amid Middle East tensions
- The Japanese Yen drops to a nearly two-month low against the US Dollar in the wake of growing acceptance that the Bank of Japan will stick to its accomodative policy settings.
- The Statistics Bureau reported that the headline Consumer Price Index (CPI) eased from the 2.8% YoY rate to 2.6% in December – hitting the lowest level since June 2022.
- Japan’s core inflation rate, which strips out prices of volatile fresh food prices, decelerated further from 2.5% in November, to 2.3%, or its lowest level since July 2022.
- This comes on top of the New Year's Day earthquake in Japan and weak wage growth data, ensuring that the Bank of Japan will not pivot away from its ultra-dovish stance.
- Japan Finance Minister Shunichi Suzuki said that the government is watching FX developments carefully, though does little to provide any respite to the JPY bulls.
- Investors further pared bets for an early rate cut by the Federal Reserve after data on Thursday showed that Jobless Claims fell to the lowest level since September 2022.
- The strong labour-market report, along with upbeat US Retail Sales figures on Wednesday, indicated a still-resilient economy and dented expectations for a Fed cut in March.
- According to the CME Group's FedWatch Tool, the markets are currently pricing in a 57% chance of an interest rate cut at the March FOMC meeting, down from 75% a week ago.
- In the latest geopolitical developments, Iranian-backed Houthi terrorists in Yemen launched two anti-ship ballistic missiles at a US-owned, Greek-operated tanker ship on Thursday.
- The risk of a further escalation of military action in the Middle East could benefit the JPY's safe-haven status and keep a lid on any meaningful upside for the USD/JPY pair.
- Traders now look to the US macro data – the Preliminary Michigan Consumer Sentiment and Inflation Expectations, along with Existing Home Sales – for a fresh impetus.
- The market attention, meanwhile, will remain glued to the upcoming BoJ monetary policy meeting, which will play a key role in influencing the near-term JPY price dynamics.
Technical Analysis: USD/JPY bulls retain control above 100-day SMA, 61.8% Fibo. confluence breakpoint
From a technical perspective, the range-bound price action witnessed over the past two days might still be categorized as a bullish consolidation phase on the back of over a 750 pips rally from the monthly swing low. Furthermore, the recent breakout through the 147.50 confluence – comprising the 100-day Simple Moving Average (SMA) and the 61.8% Fibonacci retracement level of the November-December downfall – favours bullish traders. This, along with the fact that oscillators on the daily chart are holding comfortably in the positive territory and are still far from being in the overbought zone, suggests that the path of least resistance for the USD/JPY pair is to the upside.
That said, it will still be prudent to wait for some follow-through buying beyond the 148.50-148.55 region, or a multi-week top set on Wednesday, before positioning for any further gains. Spot prices might then accelerate the positive move towards the 149.00 round figure. The upward trajectory could extend further towards the 149.70-149.75 region before the USD/JPY pair eventually aims to conquer the 150.00 psychological mark.
On the flip side, corrective declines towards the 147.50 confluence resistance breakpoint might still be seen as a buying opportunity and remain limited. That said, a convincing break below might prompt some technical selling and drag spot prices further towards the 147.00 round figure. The latter should act as a pivotal point for the USD/JPY pair, which if broken could pave the way for a further decline towards the next relevant support near the 146.60-146.50 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 New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.07% | 0.02% | 0.01% | 0.00% | 0.12% | 0.10% | -0.02% | |
| EUR | 0.07% | 0.08% | 0.08% | 0.06% | 0.20% | 0.13% | 0.05% | |
| GBP | -0.01% | -0.09% | -0.01% | -0.02% | 0.10% | 0.04% | -0.03% | |
| CAD | -0.01% | -0.08% | 0.01% | -0.03% | 0.11% | 0.06% | -0.03% | |
| AUD | 0.01% | -0.03% | 0.05% | 0.01% | 0.16% | 0.07% | -0.01% | |
| JPY | -0.12% | -0.19% | -0.08% | -0.11% | -0.14% | -0.02% | -0.14% | |
| NZD | -0.09% | -0.17% | -0.05% | -0.10% | -0.14% | 0.01% | -0.12% | |
| CHF | 0.02% | -0.01% | 0.03% | 0.03% | 0.00% | 0.17% | 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).
Inflation FAQs
What is inflation?
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
What is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
What is the impact of inflation on foreign exchange?
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
How does inflation influence the price of Gold?
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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