Verbal Intervention Heighten as Yen Stumbles, Kiwi Falls on Bleak Economic Projections

Japanese Yen breached its recent low against the broadly strong Dollar in Asian session today, but the selloff halted just before reaching 152 mark. The momentum of Yen’s decline appears to be cushioned by Japan’s heightened verbal intervention. Finance Minister Shunichi Suzuki issued a stern warning about Yen’s depreciation, warning of “decisive steps” to support the currency. This phrase was used back in Autumn 2022, marking the last instance of Japan’s direct intervention in the currency market to curb Yen’s slide.

BoJ Governor Kazuo Ueda, speaking to parliament, acknowledged the significant impact of currency fluctuations on the economy and pricing but maintained a cautious tone on monetary policy. His remarks lacked any hint of policy tightening plan, leaving the Yen without strong backing from policy adjustments. Ueda’s only said that any future changes in monetary policy will hinge on the economic and price landscape at the time.

In the broader currency market, Swiss Franc stands out as this week’s weakest performer, having already surpassed last week’s lows against both Dollar and Euro. Yen is not far behind in its underperformance. Meanwhile, Dollar, despite being the third weakest for the week, shows potential for advancement amidst the current rebound. Australian Dollar leads as the strongest, followed by Euro and Sterling. New Zealand Dollar is mixed, but turned weaker in response to the government’s grim economic forecast for the year.

Technically, further decline is expected in NZD/USD as long as 55 4H EMA (now at 0.6048) holds. Break of 0.5894 temporary low will resume the fall from 0.6368. Next target is 100% projection of 0.6368 to 0.6037 from 0.6215 at 0.5884. Nevertheless, firm break of 55 4H EMA will bring stronger rebound back towards 0.6105 resistance.

In Asia, at the time of writing, Nikkei is up 1.08%. Hong Kong HSI is down -0.74%. China Shanghai SSE is down -0.52%. Singapore Strait Times is up 0.82%. Japan 10-year JGB yield is down -0.0056 at 0.733. Overnight, DOW fell -0.08%. S&P 500 fell -0.28%. NASDAQ fell -0.42%. 10-year yield fell -0.019 to 4.234.

NZ government drastically cuts 2024 growth forecast to 0.1%, lowers inflation outlook

New Zealand government has made significant revisions to its economic forecasts, projecting a notably subdued GDP growth of just 0.1% for this fiscal year, as revealed in its latest budget statement. Additionally, inflation outlook for both 2024 and 2025 was revised downwards.

The government said a “wide range of data” collected since December highlighted “further deterioration in the economic outlook.” The expected slowdown in economic activity materialized “sooner than expected,” while inflationary pressures have “eased more than expected.”

Specifically, GDP growth projections for 2024 have been significantly lowered from prior forecast of 1.5% to 0.1%. However, there is a silver lining with GDP growth forecast for 2025 being adjusted upwards from 1.5% to 2.1%.

On the inflation front, CPI forecast for 2024 was lowered from 4.1% to 3.3%, and for 2025, forecast was revised down from 2.5% to 2.2%.

Australia’s monthly CPI holds steady at 3.4% in Feb

Australia monthly CPI was unchanged at 3.4% yoy in February. When stripping out volatile items and holiday travel, the CPI saw a slight deceleration, moving from 4.1% yoy to 3.8% yoy. However, a closer look at the core inflation measure, the annual trimmed mean CPI, reveals a slight uptick from 3.8% yoy to 3.9% yoy, suggesting underlying inflationary pressures remain persistent.

The detailed breakdown of inflation contributors highlights showed that housing costs had the most substantial rise at 4.6% yoy. Food and non-alcoholic beverages also experienced a notable increase at 3.6% yoy. Additionally, alcohol and tobacco products saw a sharp price escalation at 6.1% yoy, and insurance and financial services costs surged by 8.4% yoy, the latter being the highest among the recorded sectors.

BoJ’s Tamura stresses gradual withdrawal of stimulus for steady policy normalization

BoJ board member Naoki Tamura said that Japan’s moderate economy recovery path is expected to continue, positive cycle of wage increases leading to higher inflation rates.

“The risk of our medium- and long-term forecasts being derailed is likely small,” he remarked in a speech today.

He underscored the importance of a deliberate and gradual approach to policy normalization, ensuring that the transition away from aggressive monetary support is managed with precision and foresight.

“How to manage monetary policy ahead is very important to ensure we deftly roll back our massive stimulus program, and move slowly but steadily toward policy normalization,” he articulated.

Central to Tamura’s vision is the restoration of interest rate flexibility, positioning BoJ to effectively modulate demand and influence price dynamics through rate adjustments.

“In my view, the central bank’s ultimate goal is to bring interest rates back to levels where they can be pushed up or down to adjust demand, and influence price moves,” he stated.

USD/JPY Daily Outlook

Daily Pivots: (S1) 151.13; (P) 151.35; (R1) 151.64; More…

Intraday bias in USD/JPY is back on the upside with breach of 151.85 temporary top. Decisive break of 151.93 key resistance will confirm long term up trend resumption. Next near term target will be 61.8% projection of 140.25 to 150.87 from 146.47 at 153.03. However, firm break of 150.99 minor support will turn bias back to the downside for deeper pullback.

In the bigger picture, correction from 151.87 (2023) high could have completed at 140.25 already. Rise from 127.20 (2023 low), as part of the long term up trend, is probably ready to resume. Decisive break of 151.93 resistance (2022 high) will confirm this bullish case. Next medium term target will be 61.8% projection of 127.20 to 151.89 from 140.25 at 155.20. This will remain the favored case as long as 146.47 support holds, in case of another pullback.

Economic Indicators Update