Japanese Yen remains on the front foot against USD, eyes Japanese CPI on Friday

The Japanese Yen recovers a bit from a multi-week low touched against the USD on Wednesday.
Expectations that the BoJ will stick to its dovish stance in January should cap gains for the JPY.
Reduced bets for a March Fed rate cut to act as a tailwind for the USD and the USD/JPY pair.

The Japanese Yen (JPY) strengthens a bit against its American counterpart on Thursday and for now, seems to have snapped a three-day losing streak to the lowest level since November 28 touched the previous day. An escalation of military action in the Middle East and concerns about sustained economic weakness in China continue to weigh on investors' sentiment. Adding to this, some repositioning trade ahead of Friday's release of consumer inflation figures from Japan lends support to the JPY.

Against the backdrop of the devastating New Year's Day earthquake in Japan and weak wage growth data released last week, signs of a sustained decline in inflation will ensure that the Bank of Japan (BoJ) will delay its plan to pivot away from the ultra-loose policy settings. This might continue to undermine the JPY and provide a fresh lift to the USD/JPY pair amid a bullish US Dollar (USD), which remains well supported by diminishing odds for an early interest rate cut by the Federal Reserve (Fed).

The aforementioned fundamental backdrop warrants some caution before confirming that the recent rally for the USD/JPY pair has run out of steam and positioning for any meaningful depreciating move. Traders now look to the US economic docket, featuring the release of Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index and housing market data. This, along with Atlanta President Raphael Bostic's speech might influence the USD price dynamics and provide a fresh impetus.

Daily Digest Market Movers: Japanese Yen ticks higher amid repositioning ahead of Japan's CPI on Friday

The Japanese Yen attracts some haven flows, though lacks bullish conviction amid expectations that the Bank of Japan will stick to its ultra-dovish stance at the January 22-23 meeting.
Wednesday's upbeat US macro data further dashed expectations for an imminent shift in the Federal Reserve's policy stance as soon as March and should acts as a tailwind for the US Dollar.
The Commerce Department reported that the headline US Retail Sales increased more than anticipated, by 0.6% in December, while sales excluding autos also topped market estimates.
The data points to still-resilient consumer spending and the underlying strength that the US economy possessed, which gives the Fed more headroom to keep rates higher for longer.
This comes after Fed Governor Christopher Waller said on Tuesday that the central bank should not rush to cut interest rates until it was clear lower inflation would be sustained.
The yield on the benchmark 10-year US government bond climbed further beyond the 4% mark, hitting the highest level since December 13, and continued lending support to the buck.
Geopolitical tensions and unimpressive economic growth figures from China temper investors' appetite for riskier assets, benefitting the safe-haven JPY and capping the USD/JPY pair.
In the latest development surrounding the Israel-Hamas war, Yemen’s Houthi rebels targeted a US-owned cargo ship with a kamikaze drone in the Red Sea late Wednesday.
Pakistan undertook series of military strikes against terrorist hideouts in Sistan-Baluchistan province of Iran and said that it will continue to take all necessary steps to safeguard its people.
Data released on Wednesday showed that China’s economy expanded at an annual rate of 5.2% in the final quarter of 2023, slightly more than the official 5% growth target.
However, a deepening property crisis, mounting deflationary risks and tepid demand cast doubts over the shakier recovery for the world's second-largest economy.
Traders now loo to the US macro data for short-term opportunities, though the focus will remain glued to the latest consumer inflation figures from Japan due on Friday.

Technical Analysis: USD/JPY trades with modest losses, holds above 100-day SMA/61.8% Fibo. confluence breakpoint

From a technical perspective, the overnight sustained breakout and acceptance above the 147.50 confluence hurdle was seen as a fresh trigger for bullish traders. The said area comprises the 100-day Simple Moving Average (SMA) and the 61.8% Fibonacci retracement level of the November-December downfall, which, in turn, should act as a key pivotal point. Any subsequent slide is more likely to attract fresh buyers near the 147.00 round figure. This should help limit the downside for the USD/JPY pair near the 146.60-146.50 region.

On the flip side, the 148.50 area, or a multi-week peak set on Wednesday, now seems to act as an immediate barrier. Given that oscillators on the daily chart are holding in the positive territory and are still far from being in the overbought zone, some follow-through buying has the potential to lift the USD/JPY pair to the 149.00 mark. The momentum could extend further towards the 149.70-149.75 region before spot prices aim to conquer the 150.00 psychological mark.

Japanese Yen price this week

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the Australian Dollar.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		0.45%	0.38%	0.64%	1.98%	1.95%	1.67%	1.23%
EUR	-0.46%		-0.07%	0.18%	1.53%	1.50%	1.23%	0.78%
GBP	-0.39%	0.07%		0.25%	1.60%	1.57%	1.30%	0.85%
CAD	-0.64%	-0.20%	-0.27%		1.35%	1.32%	1.04%	0.60%
AUD	-2.01%	-1.54%	-1.61%	-1.36%		-0.02%	-0.30%	-0.75%
JPY	-1.99%	-1.54%	-1.73%	-1.33%	0.02%		-0.28%	-0.74%
NZD	-1.70%	-1.25%	-1.32%	-1.06%	0.31%	0.26%		-0.46%
CHF	-1.24%	-0.79%	-0.85%	-0.60%	0.77%	0.73%	0.45%

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

What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

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.

How does broader risk sentiment impact 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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