The Japanese yen is benefiting from a lower risk tone and concerns about the global economic slowdown. They appear to have been unaffected by the cautious comments made by Bank of Japan Governor Kazuo Ueda on Thursday. Weak US Dollar price action is contributing to the USD/JPY pair falling from the 100-day SMA.
The Japanese Yen (JPY) reversed a significant portion of its weekly losses over the past three days against the US Dollar (USD), pushing the USD/JPY pair to the 146.70 area during the Asian session on Thursday. Weak trading sentiment in stock markets turns out to be a major factor benefiting the Japanese yen’s relative safe haven status. Aside from this, growing acceptance that the Bank of Japan (BoJ) will eventually start tightening its ultra-loose policy and end yield curve control measures during the first few months of 2024 is supporting the Japanese yen.
Meanwhile, Japanese yen bulls appear to have been unmoved and largely ignored dovish comments made by Bank of Japan Governor Kazuo Ueda on Thursday amid weak US dollar price action. The US ADP report on Wednesday indicated a noticeable decline in private sector employment. This comes a day after the US Department of Labor announced that job openings fell in October to the lowest level since March 2021, and was seen as another sign that the tight labor market may ease. The data reaffirms market bets that the Federal Reserve will cut interest rates as early as March 2024. At the same time, the Fed’s dovish outlook has kept US Treasury yields low near their lowest level in several months.
Japanese yen continues to strengthen against US dollar despite Bank of Japan Governor’s dovish comments
Which failed to help the US dollar build on its recent strong movement until the highest level in two weeks that it reached on Wednesday. This in turn does not provide much support for the USD/JPY pair. However, traders may refrain from placing strong directional bets ahead of the monthly US employment details, known as Non-Farm Payrolls (NFP) on Friday. Meanwhile, the release of initial weekly jobless claims data on Thursday may provide some momentum.
Market movers in daily summary: The Japanese yen continues to strengthen against the US dollar despite dovish comments from Bank of Japan Governor Ueda and signals that a tight US labor market is easing concerns about the economic slowdown and weighing on investor sentiment, benefiting the safe-haven Japanese yen. . The US Department of Labor said on Tuesday that job openings fell by 617,000 to 8.73 million in October, or their lowest level in two and a half years.
The ADP report showed that US private sector employers added only 103,000 jobs in November, down from the downwardly revised reading of 106,000 jobs in the previous month. The readings reaffirmed market expectations of an imminent shift in the Fed’s policy stance and bets for a 25 basis point rate cut at its March policy meeting.
A slew of key US jobs data will continue on Thursday and Friday with the release of weekly initial jobless claims and key non-farm payrolls, respectively. Israeli forces stormed the main city in the southern Gaza Strip on Tuesday in the deadliest day of ground combat operations against Hamas activists, exacerbating the humanitarian crisis.
Mixed trade balance data from China
Mixed trade balance data from China showed that imports unexpectedly fell 0.6% in November, raising concerns about weak domestic demand amid looming recession risks. Bank of Japan Governor Kazuo Ueda said on Thursday that accommodative monetary policy and stimulus measures are supporting the Japanese economy.
Ueda added that they have not yet reached a position where they can achieve the target price sustainably, stably and with sufficient certainty. Furthermore, Bank of Japan board members recently said it was too early to discuss an exit from ultra-loose policy, which in turn could limit any further gains for the Japanese yen.
Technical Analysis: USD/JPY is holding near the multi-month low reached earlier this week, and remains vulnerable. From a technical perspective, this week’s repeated failure to move back above the intermediate support level The 100-day SMA, has now turned into resistance, which is currently located near the 147.45 area, and the subsequent decline favors bearish traders. Moreover, the oscillators on the daily chart are sitting deep in the negative territory and are still far from the oversold zone. This, in turn, indicates that the path of least resistance for USD/JPY is to the downside and supports the potential for further losses.
Meanwhile, any subsequent decline is likely to find some support near the 146.65 area, below which spot prices could fall to multi-month lows, around the 146.20 area touched on Monday. The latter coincides with the 38.2% Fibonacci retracement level of the July-October rally and should serve as a major pivot point. Some subsequent selling below the 146.00 mark could drag the USD/JPY pair to the 145.45-145.40 intermediate support on its way to the 145.00 psychological mark.
Will the Bank of Japan’s ultra-lenient policy change soon?
On the flip side, the 100-day SMA may continue to act as a strong immediate barrier, which if decisively crossed could trigger a surge in short covering and allow spot prices to reclaim the 148.00 mark. However, any further upward move is likely to face a strong barrier and remain capped near the 148.30-148.40 area. Sustained strength beyond the last level will indicate that the recent pullback from the 152.00 area has come to an end and shifts the bias in favor of bullish traders.
Is the Bank of Japan’s ultra-loose policy likely to change soon? The weak Japanese yen and rising global energy prices have fueled Japanese inflation, which has exceeded the 2% target set by the Bank of Japan. However, the bank believes that achieving the sustainable and stable 2% target is not yet on the horizon, so any sudden change in current policy seems unlikely.
How do the Bank of Japan’s decisions affect the Japanese yen? The massive stimulus provided by the bank caused the value of the Japanese yen to decline against major currencies. This process has been exacerbated recently by growing policy divergence between the Bank of Japan and other major central banks, which have chosen to raise interest rates sharply to combat decades-long high levels of inflation. The Bank of Japan’s policy of keeping interest rates low has widened the spread with other currencies, leading to a decline in the value of the Japanese yen.
