- Japanese yen posts strong gains on Monday
It rose for the third day in a row on Monday and is up 2% against the US dollar in the current rally. In the European session, USD/JPY is trading at 148.40, down 0.84%.
After falling to its lowest level in a year last week, the yen has recovered and is trading at its highest level in six weeks. The swing in favor of the yen has been driven by expectations that Fed policy will be less restrictive in the first half of 2024. According to CME’s FedWatch tool, there is a 100% chance of a pause in December, with a 30% chance. of a rate cut in March 2024, followed by a 64% probability in May.
The yen has received a boost as the rate differential between the United States and Japan has narrowed. Just a month ago they were trading at 4.98%, but currently they have fallen to 4.44%. Lower yields have made US Treasuries less attractive to investors and the yen has capitalized on this sentiment. The FOMC minutes are due out on Wednesday and could provide some insights into the future path of Fed rates.
The yen’s recent strength has tempered talk of intervention by Japan’s Finance Ministry, which threatened to intervene after USD/JPY fell near 152 last week. The yen has been showing strong swings lately, raising the question of whether the yen’s recent rally is sustainable.
Investors are also looking for clues from the Bank of Japan about tightening policy. The central bank has tried to dampen expectations of a change in monetary policy, but there have been some subtle signs that the BoJ will leave negative rates in 2024.
- USD/JPY has broken down from the support at 149.29 and is testing the support at 148.54
- There is resistance at 150.22 and 151.25.