Japanese Yen trims a part of intraday gains; USD/JPY rebounds from one-week low
|- The Japanese Yen stalls its intraday appreciating move to the 148.00 mark, or a one-week high against the USD.
- A positive risk tone undermines the JPY and lends support amid a modest USD bounce from a multi-month low.
- The divergent BoJ-Fed policy expectations should cap gains for USD/JPY ahead of the US data and Fedspeaks.
The Japanese Yen (JPY) strengthened to a one-week top against the US Dollar (USD) during the first half of trading on Tuesday, albeit trims a part of its intraday gains to sub-148.00 levels. A generally positive tone around the Asian equity markets turns out to be a key factor undermining the safe-haven JPY. Apart from this, a modest US Dollar (USD) recovery from a near three-month low, supported by an uptick in the US Treasury bond yields, assists the USD/JPY pair to bounce back closer to mid-148.00s during the early European session.
Any further recovery, however, seems elusive in the wake of the divergent Bank of Japan (BoJ) and the Federal Reserve (Fed) policy expectations. The recent data from Japan suggests that the economy is making progress towards achieving sustained rises in inflation, fueling speculations about an imminent shift in the BoJ's stance away from its ultra-dovish policy during the first few months of 2024. In contrast, investors seem convinced that the Federal Reserve (Fed) is done raising rates and may start easing its policy as early as March 2024.
Furthermore, concerns about a global economic downturn should keep a lid on any optimistic move in the markets and keep a lid on the USD/JPY pair. Traders now look forward to the release of the Conference Board's Consumer Confidence Index from the United States (US). This, along with speeches by FOMC members, will drive the USD and provide some impetus to the USD/JPY pair later during the North American session. The focus, meanwhile, will remain on the US Core PCE Ppice Index – the Fed's preferred inflation gauge on Thursday.
Daily Digest Market Movers: Japanese Yen fails to capitalize on its intraday gains against the USD
- Government data showed on Friday that the nationwide headline and core CPI remained above the Bank of Japan's 2% target for the 19th consecutive month in October.
- Furthermore, a surge in Japan's wholesale services inflation, driven by a tight job market, fuels speculations that the BoJ will end its negative interest rate policy in 2024.
- The services Producer Price Index (PPI) released on Monday accelerated to 2.3% in October from a year earlier from a revised 2.0% rise in the previous month.
- Japan's big employers are set to follow this year's bumper pay hikes in 2024, giving the Japanese central bank additional room to finally roll back massive monetary stimulus.
- The US Dollar drops to a fresh multi-month low amid growing acceptance that the Federal Reserve is done raising rates and may begin easing policy as early as March 2024.
- The USD/JPY pair remains heavily offered for the third successive day on Tuesday, though a positive risk tone is holding back bearish traders from placing fresh bets.
- The BoJ's preferred inflation gauge, which has been steadily rising from a 2023 low of 2.7% in February, decelerates to the 3% YoY rate in October from the 3.4% previous.
- Amid speeches by a slew of influential FOMC members, the Conference Board's US Consumer Confidence Index might also contribute to producing short-term trading opportunities later during the North American session.
Technical Analysis: USD/JPY bounces off the 148.00 mark, upside potential seems limited
From a technical perspective, a sustained break and acceptance below the 148.00 round figure will expose the 100-day Simple Moving Average (SMA), currently near the 147.90-147.85 zone, which if broken decisively will be seen as a fresh trigger for bearish traders and pave the way for deeper losses towards the monthly low, around the 147.15 area.. The USD/JPY pair might then accelerate the fall towards the 146.00 mark en route to the next relevant support near the 145.50 zone.
On the flip side, immediate resistance is pegged near the 148.80 region ahead of the 149.00 mark and the weekly peak, around the 149.65 region touched on Monday. A sustained strength beyond could lift the USD/JPY pair beyond the 150.00 psychological mark, towards the 150.35 resistance zone. Some follow-through buying will negate any near-term negative bias and allow bulls to reclaim the 151.00 round-figure mark.
Japanese Yen price today
The table below shows the percentage change of 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 | 0.10% | 0.11% | -0.06% | 0.03% | -0.02% | 0.18% | 0.04% | |
| EUR | -0.11% | 0.02% | -0.15% | -0.07% | -0.10% | 0.07% | -0.05% | |
| GBP | -0.12% | -0.02% | -0.16% | -0.09% | -0.12% | 0.07% | -0.06% | |
| CAD | 0.05% | 0.14% | 0.16% | 0.07% | 0.04% | 0.22% | 0.10% | |
| AUD | -0.04% | 0.06% | 0.09% | -0.08% | -0.04% | 0.15% | 0.05% | |
| JPY | 0.01% | 0.11% | 0.14% | -0.03% | 0.05% | 0.19% | 0.07% | |
| NZD | -0.16% | -0.06% | -0.05% | -0.23% | -0.14% | -0.19% | -0.10% | |
| CHF | -0.06% | 0.05% | 0.06% | -0.10% | -0.02% | -0.07% | 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).
Risk sentiment FAQs
What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
What are the key assets to track to understand risk sentiment dynamics?
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
Which currencies strengthen when sentiment is "risk-on"?
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
Which currencies strengthen when sentiment is "risk-off"?
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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