Japanese Yen softens to 148 against USD, BoJ's hawkish tilt could limit losses

The Japanese Yen struggles to capitalize on the previous day's recovery from the YTD trough.
Hawkish Fed expectations underpin the USD and further lend support to the USD/JPY pair.
Bets for an imminent shift in the BoJ's policy stance should help limit the downside for the JPY.

The Japanese Yen (JPY) attracts fresh sellers on Wednesday and for now, seems to have stalled its modest recovery move against its American counterpart, from the YTD low touched earlier this week. Data from the labour ministry released on Tuesday showed that Japan's real wages fell for the 21st straight month in December and household spending dropped for a tenth successive month. This is seen as an unwelcome development for the Bank of Japan (BoJ), which, along with a generally positive tone around the equity markets, seems to undermine the safe-haven JPY.

The US Dollar (USD), on the other hand, continues to draw support from expectations that the Federal Reserve (Fed) will keep interest rates higher for longer, bolstered by the incoming stronger-than-expected US macro data. Adding to this, the recent hawkish comments from several FOMC members further forced investors to scale back their bets for early and steep rate cuts in 2024. This remains supportive of elevated US Treasury bond yields and acts as a tailwind for the Greenback, which, in turn, assists the USD/JPY pair to attract some dip-buying near the 147.70 region.

That said, the BoJ's hawkish tilt earlier this month, signalling conviction on hitting the inflation goal and setting the stage to pull interest rates out of negative territory at its upcoming meetings in March or April, could limit losses for the JPY. Furthermore, investors seem convinced that wage growth this year may outpace that of 2023 and pave the way for the BoJ to exit its decade-long ultra-loose monetary policy. This, in turn, warrants some caution before placing aggressive bullish bets around the USD/JPY pair and positioning for any further intraday appreciating move.

Daily Digest Market Movers: Japanese Yen turns lower amid a positive risk tone, bears seem non-committed

The Japanese Yen loses traction on Wednesday in the wake of a stable performance around the equity markets, though expectations for an immiment shift in the Bank of Japan's policy stance should limit losses.
Market participants now seem convinced that another substantial pay hike this year will support sustained and stable inflation, and allow the BoJ to pivot away from its ultra-dovish monetary policy settings.
Geopolitics, along with China's economic woes, remain key risks for the markets, which benefits the safe-haven JPY and exerts pressure on the USD/JPY pair during the Asian session on Wednesday.
Investors continue to scale back their expectations for early and steep rate cuts by the Federal Reserve in the wake of a resilient US economy and the recent hawkish remarks by influential FOMC members.
Philadelphia Fed President Patrick Harker said on Tuesday that inflation must be moving sustainably lower to open rate cut door and that it would be a mistake to cut interest rates prematurely.
Harker added that the recent news on inflation has been encouraging, though wage gains are still too high for getting to the 2% target and it is possible that inflation may be more persistent than expected.
Separately, Minneapolis Fed President Neel Kashkari said that we are not done yet on inflation and most of the disinflationary gains have come from the supply-side, but the data is looking positive.
This comes on top of Fed Chair Jerome Powell's remarks on Sunday, saying that a strong economy gives the central bank time to evaluate if inflation will continue to fall before starting to cut interest rates.
Moreover, the yield on the benchmark 10-year US government bond holds above 4.0%, which acts as a tailwind for the US Dollar and lends some support to the USD/JPY pair heading into the European session.

Technical Analysis: USD/JPY might attract fresh sellers at higher levels, 148.80 barrier holds the key for bulls

From a technical perspective, this week's failure to find acceptance above the 148.80 level constitutes the formation of a bearish double-top pattern. That said, oscillators on the daily chart – though have been losing traction – are still holding in the positive territory and warrant some caution before positioning for deeper losses. That said, some follow-through selling below the 100-day Simple Moving Average (SMA), currently pegged near the 147.60-147.55 region, could drag the USD/JPY pair further towards the 147.00 round figure. A convincing break below the latter could accelerate the corrective decline further towards the 146.35 intermediate support en route to sub-146.00 levels, or the monthly low touched last week.

On the flip side, momentum back above the 148.00 mark now seems to confront some resistance near the 148.30-148.35 region. Bulls, meanwhile, are likely to wait for a sustained strength beyond the 148.80 double-top resistance before placing fresh bets. The USD/JPY pair might then surpass an intermediate hurdle near the 149.55-149.60 region and aim to reclaim the 150.00 psychological mark.

(Note: The story was corrected at 07:35 GMT on February 7 to say that the JPY attracts fresh sellers on "Wednesday" instead of "Thursday" in the first paragraph.)

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 US Dollar.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.07%	-0.06%	-0.09%	-0.16%	-0.06%	-0.17%	-0.04%
EUR	0.05%		0.01%	-0.01%	-0.07%	0.01%	-0.08%	0.02%
GBP	0.06%	-0.02%		-0.04%	-0.08%	0.01%	-0.10%	0.02%
CAD	0.09%	0.00%	0.02%		-0.06%	0.02%	-0.10%	0.01%
AUD	0.13%	0.06%	0.07%	0.05%		0.07%	-0.04%	0.09%
JPY	0.05%	-0.02%	0.00%	-0.04%	-0.10%		-0.12%	-0.02%
NZD	0.17%	0.09%	0.10%	0.06%	0.01%	0.10%		0.10%
CHF	0.03%	-0.03%	-0.01%	-0.05%	-0.07%	0.00%	-0.11%

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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