Japanese Yen depreciates, while US Dollar remains stronger ahead of US inflation gauge
|- The Japanese Yen edges lower ahead of the Fed's preferred inflation gauge, Core PCE.
- Tokyo CPI increased to 2.2% YoY in May, marking the 26th consecutive month of expansion.
- The hawkish remarks of the Fed officials are keeping the US Dollar stronger.
The Japanese Yen (JPY) loses ground despite the Tokyo Consumer Price Index (CPI), which increased to 2.2% year-over-year in May, up from April's 1.8% rise, a 26-month low. Additionally, Japan’s Retail Sales (YoY) grew 2.4% in April, accelerating from a downwardly revised 1.1% rise in March and surpassing market forecasts of 1.9% growth. This marks the 26th consecutive month of expansion, indicating a sustained period of healthy consumption in Japan.
The Bank of Japan (BoJ) has maintained a deeply entrenched monetary policy stance. If nationwide inflation in Japan declines, it will prevent the central bank from raising interest rates. The significant rate differential between Japan and other countries continues to pressure the Japanese Yen, underpinning the USD/JPY pair.
US Dollar (USD) rebounds ahead of the Federal Reserve's preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, which will be released on Friday. The decline in the US Treasury yields could limit the advance of the US Dollar.
US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six other major currencies, trades higher around 104.80 with 2-year and 10-year yields on US Treasury bonds standing at 4.92% and 4.54%, respectively, by the press time.
Daily Digest Market Movers: Japanese Yen edges lower due to risk aversion
- According to a Reuters report, Japanese Finance Minister Shunichi Suzuki stated on Friday that “it is important for currencies to move stably reflecting fundamentals.” Suzuki also mentioned that he is closely monitoring foreign exchange movements and is prepared to take all necessary measures regarding forex.
- Tokyo’s Core Consumer Price Index (CPI) rose 1.9% year-over-year in May, accelerating from a two-year low of 1.6% in April, as expected. This figure remains below the Bank of Japan's (BoJ) 2% target for the second consecutive month, reducing the pressure on the BoJ to raise interest rates soon.
- On Thursday, US Gross Domestic Product (GDP) Annualized growth rate was revised lower to 1.3% from 1.6% for the first quarter. Additionally, the US weekly Initial Jobless Claims for the week ending on May 24 rose to 219K from the previous week of 216K, above the market consensus of 218K.
- On Thursday, Dallas Fed President Lorie Logan expressed continued concerns about upside risks to inflation despite recent easing. Logan warned that the Federal Reserve needs to remain flexible and keep "all options on the table" as it monitors data and determines how to respond, according to Reuters.
- According to Bloomberg, Federal Reserve Bank of Atlanta President Raphael Bostic stated on Wednesday that the path of inflation is expected to be uneven, and a decrease in inflation breadth would bolster confidence in the necessity of a rate cut.
- On Wednesday, the Fed Beige Book report covering April to mid-May showed that national economic activity experienced slight growth, with mixed conditions across industries and districts. The report also indicated that employment rose slightly, wage growth was moderate, and prices increased modestly as consumers resisted further price hikes.
- Reuters reported that Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, hinted at the possibility of a rate hike. Kashkari remarked, “I don’t believe anyone has completely ruled out the option of increasing rates,” expressing doubts about the disinflationary trend and projecting only two rate cuts.
Technical Analysis: USD/JPY trades around 157.00
The USD/JPY pair traded around 156.80 on Friday. The daily chart shows a symmetrical triangle, indicating a pause in the prevailing bullish trend. However, the 14-day Relative Strength Index (RSI) remains above 50, suggesting a continued bullish bias for the pair.
The USD/JPY pair could test the upper boundary of the symmetrical triangle, followed by the psychological level of 158.00. If this level is breached, the next target could be 160.32, marking its highest point in over thirty years.
On the downside, immediate support appears at the psychological level of 157.00, followed by the 14-day Exponential Moving Average (EMA) at 156.55. A further decline could lead the USD/JPY pair to test the lower boundary of the symmetrical triangle.
USD/JPY: Daily Chart
(This story was corrected on May 31 at 09:20 GMT to say, in the third market mover, that the Jobless Claims data is for the week ending on May 24, not May 2.)
Japanese Yen price today
The table below shows the percentage change of the Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the weakest against the Canadian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.06% | 0.11% | -0.16% | -0.10% | 0.16% | -0.12% | 0.14% | |
| EUR | -0.03% | 0.06% | -0.20% | -0.13% | 0.13% | -0.14% | 0.11% | |
| GBP | -0.11% | -0.08% | -0.27% | -0.22% | 0.06% | -0.22% | 0.03% | |
| CAD | 0.15% | 0.19% | 0.26% | 0.07% | 0.34% | 0.04% | 0.35% | |
| AUD | 0.10% | 0.13% | 0.22% | -0.07% | 0.28% | -0.01% | 0.29% | |
| JPY | -0.17% | -0.13% | -0.08% | -0.33% | -0.30% | -0.28% | 0.00% | |
| NZD | 0.08% | 0.14% | 0.22% | -0.08% | -0.01% | 0.25% | 0.27% | |
| CHF | -0.16% | -0.12% | -0.06% | -0.35% | -0.27% | 0.00% | -0.28% |
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).
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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