Japanese Yen hangs near multi-decade low against USD, not out of the woods yet

The Japanese Yen drops to a fresh multi-decade low amid the BoJ's dovish stance.
A modest USD uptick further lends some support to USD/JPY and favours bulls.
Intervention fears help limit any further JPY losses and cap the upside for the pair.

The Japanese Yen (JPY) stages a modest recovery after dropping to the lowest level since 1990 against its American counterpart on Wednesday, albeit lacks follow-through. Japanese government officials continued with their jawboning to defend the domestic currency, which, along with a softer risk tone, prompts traders to lighten their bearish bets around the safe-haven JPY. Any meaningful appreciating move for the JPY, however, still seems elusive in the wake of the Bank of Japan's (BoJ) dovish tone, indicating that it intends to maintain an accommodative monetary policy for an extended period.

Apart from this, some follow-through US Dollar (USD) buying, bolstered by doubts about whether the Federal Reserve (Fed) will cut interest rates three times this year as projected, helps limit the downside for the USD/JPY pair. Tuesday's better-than-expected release of the US Durable Goods Orders suggests that the economy is in good shape. This, along with still-sticky inflation, might force the Fed to keep interest rates higher for longer. This remains supportive of elevated US Treasury bond yields and favours the USD bulls, suggesting that the path of least resistance for the currency pair is to the upside.

Daily Digest Market Movers: Japanese Yen draws support from intervention fears, BoJ's dovish tone favour bears

The Bank of Japan indicated that it intends to maintain an accommodative monetary policy for an extended period at the end of the March meeting, which continues to undermine the Japanese Yen.
The view was echoed by BoJ Board Member Tamura Naoki on Wednesday, who added that the bank will guide monetary policy appropriately in accordance with economic, price, and financial developments.
Japan's top currency diplomat, Masato Kanda, said on Tuesday that the current JPY weakness does not reflect fundamentals and labelled the recent moves as speculative, showing readiness to respond to volatility.
Japan’s finance minister Shunichi Suzuki offered some verbal intervention on Wednesday, saying that he would not rule out any measures to cope with the weakening currency and disorderly FX moves.
Adding to this, BoJ Governor Kazuo Ueda said that FX moves have big impact on economy, prices, albeit refrained from commenting on any specific FX levels.
The US Dollar adds to the previous day's modest gains that followed the release of the upbeat Durable Goods Orders data, which registered a growth of 1.4%, slightly more than expected in February.
Separately, the Conference Board reported that the US Consumer Confidence Index dipped to 104.7 in March, little changed from the previous month's reading of 104.8 amid fading fears of a recession.
Furthermore, consumers' inflation expectations ticked up to 5.3% during the reported month from 5.2% in February, which might force the Federal Reserve to keep interest rates higher for longer.
Traders, however, seem reluctant to place aggressive direction bets and prefer to wait for Friday's release of the crucial US Personal Consumption and Expenditure (PCE) Price Index data.

Technical Analysis: USD/JPY continues to face stiff resistance near the 152.00 mark, downside potential seems limited

From a technical perspective, some follow-through buying, leading to a move beyond the YTD peak and the 152.00 mark, will be seen as a fresh trigger for bullish traders. Given that oscillators on the daily chart are holding comfortably in the positive territory, the USD/JPY pair might then prolong its well-established uptrend witnessed since January 2023 and climb further towards the 153.00 round figure.

Meanwhile, any corrective decline might now be seen as a buying opportunity and remain limited near the 151.00 mark. A convincing break below, however, might expose the next relevant support near the 150.25 region. This is closely followed by the 150.00 psychological mark, which, if broken decisively, could make the USD/JPY pair vulnerable to accelerate the corrective decline further towards the 149.35-149.30 region en route to the 149.00 mark.

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.

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.