Home Forex The Japanese yen is looking to capitalize on its modest intraday gains against the USD

The Japanese yen is looking to capitalize on its modest intraday gains against the USD

by SuperiorInvest


  • The Japanese yen is recovering a bit from the multi-week low it hit against the USD on Wednesday.
  • Expectations that the BoJ will stick to its dovish stance in January should limit JPY gains.
  • Reduced bets on March Fed rate cut to act as tailwind for USD and USD/JPY pair.

The Japanese yen (JPY) attracted some buyers on Thursday, recovering some of its weekly losses against the American dollar (USD) registered in the last three days. Market sentiment remains fragile amid diminishing chances of an early rate cut by the Federal Reserve (Fed), geopolitical tensions and lingering concerns about a slowdown in China’s economic growth. This, in turn, is seen as a key factor benefiting from the relatively safe position of the JPY, which, along with the slight decline in the USD, is putting some pressure on the USD/JPY pair.

However, any meaningful JPY appreciation appears elusive amid growing consensus that the Bank of Japan (BoJ) will not end its negative interest rate policy this month. Additionally, positive US retail sales data released on Wednesday dashed hopes for March Fed rate cuts, which in turn should act as a tailwind for the dollar. In addition, the recent widening of the US-Japan gap may help limit JPY gains and limit downside for the USD/JPY pair.

Daily Digest Market Movers: Japanese gains only slightly amid risk, lacks subsequent turnaround

  • The Japanese yen is attracting some haven flows, though it lacks bullish conviction amid expectations that the Bank of Japan will maintain its ultra-dovish stance at its January 22-23 meeting.
  • Wednesday’s upbeat US macro data further dashed expectations of an immediate shift in Federal Reserve policy as early as March and should act as a tailwind for the US dollar.
  • The Commerce Department reported that total U.S. retail sales rose a more-than-expected 0.6% in December, with non-auto sales also beating market estimates.
  • The data point to still-resilient consumer spending and underlying strength in the US economy, giving the Fed more room to keep rates higher for longer.
  • This comes after Fed Governor Christopher Waller said on Tuesday that the central bank should not rush to cut interest rates until it is clear that lower inflation is sustainable.
  • The yield on the benchmark 10-year US Treasury bond climbed further above the 4% mark to hit its highest level since Dec. 13, continuing to provide credit support to the dollar.
  • Geopolitical tensions and lackluster economic growth data from China are dampening investors’ appetite for riskier assets, benefiting from a safe-haven JPY and capping the USD/JPY pair.
  • In the latest development surrounding the war between Israel and Hamas, Yemen’s Houthi rebels attacked a US-owned cargo ship with a kamikaze drone in the Red Sea late Wednesday.
  • Pakistan has launched a series of military strikes against terrorist hideouts in Iran’s Sistan-Baluchistan province and has said it will continue to take all necessary steps to protect its people.
  • Data released on Wednesday showed China’s economy grew at an annual rate of 5.2% in the final quarter of 2023, slightly higher than the official 5% growth target.
  • However, the deepening asset crisis, growing deflationary risks and tepid demand cast doubt on the uncertain recovery of the world’s second largest economy.

Technical analysis: USD/JPY bulls on top, 100-day SMA/61.8% Fibo. Confluence breakpoint holds the key

From a technical perspective, a sustained overnight breakout and acceptance above the 147.50 confluence was seen as a new trigger for bullish traders. The mentioned area includes the 100-day simple moving average (SMA) and the 61.8% Fibonacci retracement level from the decline in November and December, which in turn should act as a key pivot point. Any further decline is more likely to attract new buyers near the 147.00 figure. This should help limit USD/JPY’s downside near the 146.60-146.50 region.

On the downside, the 148.50 area, or the multi-week high established on Wednesday, now appears to act as an immediate barrier. As the oscillators on the daily chart remain in positive territory and are still far from the overbought zone, some subsequent buys have the potential to lift USD/JPY a pair at the 149.00 mark. The momentum could extend further towards the 149.70-149.75 region before spot prices focus on breaking the psychological 150.00 barrier.

Japanese yen price this week

The table below shows the percentage change of the Japanese Yen (JPY) against the listed major currencies for the week. The Japanese yen was the strongest against the Australian dollar.

American dollar euros GBP CAD AUD JPY NZD CHF
American dollar 0.45% 0.38% 0.64% 1.98% 1.95% 1.67% 1.23%
euros -0.46% -0.07% 0.18% 1.53% 1.50% 1.23% 0.78%
GBP -0.39% 0.07% 0.25% 1.60% 1.57% 1.30% 0.85%
CAD -0.64% -0.20% -0.27% 1.35% 1.32% 1.04% 0.60%
AUD -2.01% -1.54% -1.61% -1.36% -0.02% -0.30% -0.75%
JPY -1.99% -1.54% -1.73% -1.33% 0.02% -0.28% -0.74%
NZD -1.70% -1.25% -1.32% -1.06% 0.31% 0.26% -0.46%
CHF -1.24% -0.79% -0.85% -0.60% 0.77% 0.73% 0.45%

The heat map shows the percentage changes of major currencies against each other. The base currency is selected from the left column, while the quote currency is selected from the top row. For example, if you select the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change shown in the box will be EUR (base)/JPY (rate).

Frequently asked questions about the Fed

Monetary policy in the US is shaped by the Federal Reserve System (Fed). The Fed has two mandates: to achieve price stability and to promote full employment. Its primary tool to achieve these goals is the adjustment of interest rates.
When prices rise too fast and inflation is above the Fed’s 2% target, it raises interest rates, which raises borrowing costs throughout the economy. This results in a stronger US dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the unemployment rate is too high, the Fed can cut interest rates to encourage lending, which weighs on the dollar.

The Federal Reserve (Fed) holds eight policy meetings a year at which the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is comprised of twelve Fed officials—seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional reserve bank presidents who serve one-year terms on a rotating basis. .

In extreme situations, the Federal Reserve can resort to quantitative easing (QE) policy. QE is the process by which the Fed substantially increases the flow of credit in a troubled financial system.
It is a non-standard policy measure used during crises or extremely low inflation. It was the Fed’s weapon during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE usually weakens the US dollar.

Quantitative tightening (QT) is the reverse process of QE, where the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of bonds it holds maturing into buying new bonds. It is usually positive for the value of the US dollar.

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