- The Japanese Yen ticks lower against the US Dollar for the second straight day on Monday.
- The prevalent risk-on environment is seen as a key factor undermining the safe-haven JPY.
- The divergent Fed-BoJ policy expectations act as a headwind for USD/JPY and cap gains.
- Traders also seem reluctant to place aggressive bets ahead of the BoJ decision on Tuesday.
The Japanese Yen (JPY) remains on the defensive against the US Dollar (USD) for the second successive day on Monday and retreats further from its highest level since late July touched last week. The global risk sentiment remains well supported by the prospects for interest-rate cuts in 2024 and the optimistic outlook from China’s Central Finance Office. This, in turn, is seen as a key factor undermining the JPY’s relative safe-haven status and assists the USD/JPY pair to stick to its modest intraday gains, just below mid-142.00s heading into the European session.
Meanwhile, top Fed officials – New York Fed President John Williams and Atlanta’s Raphael Bostic – on Friday tried to temper speculation about early interest rate cuts. The markets, however, seem convinced that the US central bank will begin easing its policy by the first half of 2024. This, in turn, keeps a lid on the USD recovery from over a four-month low touched on Friday. Adding to this, expectations that the Bank of Japan (BoJ) may exit the negative interest rate regime in early next year help limit losses for the JPY and act as a headwind for the USD/JPY pair.
Traders also seem reluctant to place aggressive directional bets and prefer to wait for the highly-anticipated BoJ monetary policy decision, scheduled to be announced during the Asian session on Tuesday. This, in turn, warrants some caution before confirming that the USD/JPY pair has formed a near-term bottom around the 141.00 mark. In the run-up to the key central bank event risk, traders on Monday will take cues from the broader risk sentiment and the USD price dynamics in the absence of any relevant macroeconomic releases from Japan or the US.
Daily Digest Market Movers: Japanese Yen trades with negative bias against US Dollar, lacks follow-through
- The prevalent risk-on environment is seen undermining the safe-haven Japanese Yen amid a modest US Dollar recovery from over a four-month low touched on Friday.
- State media Xinhua, citing a government readout, reported that China’s economy is expected to see more favourable conditions and more opportunities than challenges in 2024.
- New York Fed President John Williams, in an interview with CNBC, said that we aren’t really talking about rate cuts right now and it’s premature to speculate about them.
- William added that the data can move in surprising ways and the central bank needs to be ready to tighten policy further if the progress on inflation were to stall or reverse.
- Separately, Atlanta Fed President Raphael Bostic said that rate cuts were not an imminent thing and that the first cuts could come sometime in the third quarter of 2024.
- North Korea fired at least one unidentified type of ballistic missile on Monday, just hours after a separate launch of a short-range missile late Sunday night.
- The flash PMI data released on Friday showed that German business activity deteriorated in December, increasing the risk of a recession in Europe’s biggest economy.
- The S&P Global Composite PMI edged higher to 51.0 from 50.7, suggesting that the business activity in the US private sector continues to expand at a modest pace in early December.
- The USD/JPY pair, meanwhile, struggles to move back above mid-142.00s amid rising bets that the Bank of Japan may exit its negative rate policy early next year.
Technical Analysis: USD/JPY struggles to build on the uptick, 200-day SMA holds the key for intraday traders
From a technical perspective, last week’s breakdown and close below the very important 200-day Simple Moving Average (SMA) was seen as a fresh trigger for bearish traders. Furthermore, the USD/JPY pair’s inability to move back above the said support-turned-resistance, currently around the 142.55 region, validates the negative outlook. That said, the Relative Strength Index (RSI) on the daily chart remains closer to oversold territory and makes it prudent to wait for some near-term consolidation or a modest bounce before the next leg down.
In the meantime, any further move up is likely to attract fresh sellers near the 142.75-142.80 region and remain capped near the 143.00 round figure. That said, some follow-through buying could trigger a short-covering rally and allow the USD/JPY pair to reclaim the 144.00 mark. On the flip side, the 142.00 round figure now seems to protect the immediate downside ahead of the 141.40-141.35 region, below which spot prices could retest sub-141.00 levels, or a multi-month low touched last Thursday. The subsequent downfall has the potential to drag the pair further towards the 140.00 psychological mark.
Japanese Yen price today
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the Pound Sterling.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.14% | -0.17% | -0.03% | -0.24% | -0.09% | -0.47% | -0.12% | |
| EUR | 0.14% | -0.03% | 0.13% | -0.10% | 0.06% | -0.32% | 0.03% | |
| GBP | 0.18% | 0.03% | 0.15% | -0.06% | 0.09% | -0.29% | 0.06% | |
| CAD | 0.03% | -0.12% | -0.15% | -0.21% | -0.06% | -0.45% | -0.09% | |
| AUD | 0.24% | 0.10% | 0.07% | 0.22% | 0.15% | -0.23% | 0.12% | |
| JPY | 0.08% | -0.06% | -0.08% | 0.06% | -0.16% | -0.39% | -0.04% | |
| NZD | 0.47% | 0.32% | 0.29% | 0.45% | 0.23% | 0.38% | 0.35% | |
| CHF | 0.11% | -0.04% | -0.07% | 0.09% | -0.14% | 0.02% | -0.36% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.
The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.
A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.