- EUR/JPY pauses after reaching a new annual maximum on Wednesday.
- The disappointing commercial balance of Japan and a moderate box office continue to support the strength of the EUR/JPY.
- The pair remains above 172.00 while the bulls defend the support, the psychological resistance is consolidated in 173.00
The euro (EUR) is being negotiated in a narrow range against Japanese Yen (JPY) on Thursday, after reaching a maximum of 173.25 on Wednesday. Despite a minor setback, the divergence of central banks and a decreasing perspective for Japan’s economy are still a key issue.
At the time of writing, the EUR/JPY is quoting over the level of psychological support of 172.00.
The slow commercial data of Japan and its low performance provide a gloomy perspective for the YEN
Japan published their latest data on Wednesday, which showed that Japan exports continued to fall as a result of high tariffs imposed on steel, aluminum and autopartments to the United States (USA).
Japan’s commercial data for June reflected mixed performance, highlighting the continuous external challenges for the economy. The adjusted trade balance of goods recorded a ¥ -235.5 billion deficit, slightly improved from ¥ -291.6 billion previously, while the general trade balance stood at ¥ 153.1 billion, below the expectations of ¥ 353.9 billion and falling sharply from ¥ 638.6 billion in May.
Exports fell 0.5% year -on -year, below the forecasts of an increase of 0.5%, although improving with respect to the contraction of May 1.7%.
On the other hand, imports increased 0.2%, exceeding expectations of a 1.6%drop and marking a rebound with respect to the previous fall of 7.7%. In addition, investments in foreign bonds and actions in Japan fell, pointing out weaker foreign capital flows.
In general, the data suggests a weak external demand and a commercial impulse in decline, which could continue to press the Yen, especially while Japan maintains its position of accommodating monetary policy in the midst of global hardening cycles.
The weakest Japanese commercial data of what is expected to reinforce the bearish perspective for the YEN, supporting the continuous strength of the EUR/JPY. The drop in exports indicates a weak external demand, while the fall in foreign investment flows suggests a decreasing appetite by Japanese assets, both factors that weigh on the YEN.
The divergence of monetary policies between the BOJ and the ECB supports the EUR/JPY bullish potential
At the same time, the slow commercial performance of Japan, together with a moderate Japan Bank (Boj), contrasts markedly with the most cautious position of the European Central Bank (ECB), where the expectations of rates cuts remain moderate due to persistent inflation.
This divergence of monetary policies continues to support the ascending trajectory of the EUR/JPY.
The EUR/JPY remains above 172.00 while the bulls defend the support after an annual new maximum reached Wednesday
After registering a new annual maximum in 173.25 on Wednesday, the inability to stay above the level of psychological resistance of 173.00 allowed bassists to take the action of the return price towards the 172.00 mark.
The current daily candle shows the bullies trying to push up prices, but the upper wick indicates that the sellers responded quickly, pushing to the torque to a narrow range.
If the bulls manage to gain traction above 173.00, a rupture of the psychological level of 174.00 could open the door to a continuation towards the maximum of July 2024 of 175.43.
At the bottom, the Fibonacci recoil level of 78.6% of the 2024 Julio-Agosto movement is providing support in 170.93, just above the simple mobile average (SMA) of 20 days. A downward movement with a 50 -day SMA rupture in 166.78 could trigger an increase in sales pressure to the 50% fibo level in 164.92.
Meanwhile, the relative force index (RSI) about 69 suggests that the torque is close to the overcompra territory.
Japanese – frequent questions
The Japanese Yen (JPY) is one of the most negotiated currencies in the world. Its value is determined in general by the march of the Japanese economy, but more specifically by the policy of the Bank of Japan, the differential between the yields of the Japanese and American bonds or the feeling of risk among the operators, among other factors.
One of the mandates of the Bank of Japan is the currency control, so its movements are key to the YEN. The BOJ has intervened directly in the currency markets sometimes, generally to lower the value of YEN, although it abstains often due to the political concerns of its main commercial partners. The current ultralaxy monetary policy of the BOJ, based on mass stimuli to the economy, has caused the depreciation of the Yen in front of its main monetary peers. This process has been more recently exacerbated due to a growing divergence of policies between the Bank of Japan and other main central banks, which have chosen to abruptly increase interest rates to fight against inflation levels of decades.
The position of the Bank of Japan to maintain an ultralaxa monetary policy has caused an increase in political divergence with other central banks, particularly with the US Federal Reserve. This favors the expansion of the differential between the American and Japanese bonds to 10 years, which favors the dollar against Yen.
The Japanese Yen is usually considered a safe shelter investment. This means that in times of tension in markets, investors are more likely to put their money in the Japanese currency due to their supposed reliability and stability. In turbulent times, the Yen is likely to be revalued in front of other currencies in which it is considered more risky to invest.
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.
