- The Japanese Yen remains weakened by Thursday's dovish comments from the BoJ.
- Uncertainty over Fed rate cuts keeps dollar bulls on the defensive and caps the pair's gains.
- In addition, investors prefer to wait for the consumer inflation figures in the United States, which will be published next week.
The Japanese Yen (JPY) hits a new yearly low against its US counterpart on Friday, although it lacks follow-through selling and is trading below the 149.50 level at the start of the European session. The short-term bias, however, appears to be leaning in favor of the bears following dovish remarks from Bank of Japan Deputy Governor Uchida Shinichi on Thursday, in which he stated that the central bank will not raise rates aggressively. by ending negative rates. On the other hand, the risk-on environment could continue to weaken the safe-haven Japanese Yen and act as a tailwind for the USD/JPY pair.
Traders, however, could refrain from opening new directional positions and choose to wait for clarity on the timing and pace of interest rate cuts by the Federal Reserve (Fed) in 2024. Therefore, Attention will remain focused on the release of the latest US consumer inflation figures next week, which will influence the Fed's future policy decisions. This will play a key role in sentiment around the US dollar ( USD) and will determine the short-term path for the USD/JPY pair. Meanwhile, the pair could consolidate recent gains amid hopes of an imminent change in the Bank of Japan's monetary policy stance.
Daily Market Summary: Japanese Yen Remains Down After Uchida's Dovish Statements
- The Japanese currency was subject to aggressive selling during the trading session on Thursday and registered annual lows against the US dollar, in reaction to the dovish statements of the Deputy Governor of the Bank of Japan, Shinichi Uchida.
- In a press release, Uchida signaled a gradual move away from the current negative interest rate environment and said the BoJ is not planning to make any drastic moves in the near future.
- Chief Cabinet Secretary Yoshimasa Hayashi stated this Friday that it is up to the BoJ to decide the details of monetary policy and that Uchida's comments were the same as those Governor Ueda made at the last meeting.
- Japanese Finance Minister Shunichi Suzuki stated that it is up to the BoJ to decide specific monetary policy and that it is important that currencies move in a stable manner, reflecting fundamentals.
- Strong US macroeconomic data, coupled with recent hawkish comments from several Federal Reserve officials, forced investors to lower their expectations for early and steep interest rate cuts this year.
- The Richmond Fed's Thomas Barkin said Thursday that the central bank has time to be patient with rate changes and needs good inflation numbers to continue and expand.
- Barkin further added that the labor market remains vibrant and it is difficult to determine the appropriate course of action for rates based solely on economic models.
- The 10-year US government bond yield remains comfortably above 4.0%, although it hardly impresses dollar bulls or provides any significant boost to the USD/JPY pair.
- Traders seem reluctant to open aggressive positions and prefer to wait for the publication of next week's US consumer inflation figures for new clues on the Fed's future monetary policy decision.
Technical Analysis: USD/JPY uptrend continues, break of 148.80 barrier in play
From a technical point of view, the break of the horizontal barrier of 148.80 the previous day was considered a new trigger for the bulls and could have laid the foundation for further gains. Furthermore, the daily chart oscillators remain comfortably in positive territory and are still far from the overbought zone. This further validates the constructive setup and suggests that the path of least resistance for the USD/JPY pair is to the upside. Therefore, further strengthening towards recovery of the psychological level of 150.00, for the first time since November 17, seems a clear possibility. Some follow-through buying should pave the way for an extension of the recent uptrend seen since the beginning of this year.
On the opposite side, any significant corrective decline seems to find good support near the 149.00 level ahead of the strong resistance at 148.80, now turned support. This last level should act as a key pivot point, which if broken decisively could spark some technical selling and drag the USD/JPY back to the round 148.00 level. The bearish trajectory could further extend towards the test of the 100-day SMA, around the 147.60 region. If this last zone cannot be defended, the positive outlook will be nullified and the short-term bias will tilt in favor of the bears.
Frequently Asked Questions about the Japanese Yen
What factors determine the price of the Japanese Yen?
The Japanese Yen (JPY) is one of the most traded currencies in the world. Its value is determined broadly by the performance of the Japanese economy, but more specifically by the policy of the Bank of Japan, the differential between the yields of Japanese and US bonds or the risk sentiment among traders, among other factors.
How do decisions by the Bank of Japan affect the Japanese Yen?
One of the mandates of the Bank of Japan is currency control, so its movements are key for the Yen. The BoJ has intervened directly in currency markets on occasion, usually to lower the value of the Yen, although it often refrains from doing so due to the political concerns of its major trading partners. The BoJ's current ultra-loose monetary policy, based on massive stimulus to the economy, has caused the depreciation of the Yen against its main currency pairs. This process has been exacerbated more recently by a growing policy divergence between the Bank of Japan and other major central banks, which have opted to sharply raise interest rates to combat decades-old levels of inflation.
How does the spread between Japanese bond yields and US bond yields affect the Japanese Yen?
The Bank of Japan's ultra-loose monetary policy stance has led to increased policy divergence with other central banks, particularly the US Federal Reserve. This favors the widening of the spread between US and Japanese 10-year bonds, which favors the Dollar against the Yen.
How does general risk sentiment influence the Japanese Yen?
The Japanese Yen is often considered 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. In turbulent times, the Yen is likely to appreciate against other currencies that are considered riskier to invest in.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
