The Japanese yen (JPY) weakened against the US dollar in the early hours of Thursday’s trading, trading near 151.65, remaining close to its lowest level in decades reached last week.
The Bank of Japan struck a pessimistic tone at the end of its March meeting and did not provide any guidance on future policy steps. We saw a generally positive movement in stock markets, which weakened the Japanese yen, considered a safe haven, and helped the USD/JPY pair to rise with each drop near the 151.55 zone.
Analysts said that investors would remain cautious amid expectations that Japanese authorities will intervene in the market to prevent a decline in the local currency. This may deter strong positions as investors prefer to wait for further signals regarding the path of Federal Reserve interest rate cuts before determining the near-term direction. Therefore, the focus remains on the release of the Non-Farm Payrolls (NFP) report on Friday.
Federal Reserve policymakers do not seem to see any urgent need to lower interest rates because US labor market conditions are strong and the economic outlook is robust. Federal Reserve Bank of Cleveland President Loretta Mester said yesterday that the US central bank sees more risks in cutting interest rates too early. Federal Reserve Chairman Powell stated, “With labor markets and economic growth very strong, we don’t need to take risks.” At the same time, he sees three interest rate cuts as “reasonable” this year.
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Negative pressure on the JPY: is the Bank of Japan backing off?
At the same time, the JPY seems weak as investors lack confidence that the Bank of Japan will continue to tighten its policy due to uncertainty about the wage growth crisis. It seems the market has absorbed fears of Japanese intervention in the foreign exchange market to support the Japanese yen, and are pricing that in.
However, the current JPY decline lacks continuity and remains confined to a two-week trading range between 151.94 and 150.99 amid cautious expectations from the Bank of Japan (BoJ), which says monetary policy will remain accommodative for some time, a key factor that continues to negatively pressure the Japanese yen.
“I believe expectations of Japanese authorities intervening in the markets to support the local currency may deter speculators on the Japanese yen from placing strong bets in the near term,” said Rania Gule, a forex analyst with broker XS.com. “In my view, risk sentiments and prevailing market concerns are reasons to support the strength of the Japanese yen as a haven, which, along with the weak movement of the US dollar, may contribute to limiting the upward trend of the dollar/yen pair.”
Concurrently the markets lowered their expectations for an early rate cut by the Federal Reserve, indicating that the gap between US and Japanese interest rates will remain large. This may lead to diverting liquidity flows away from the JPY and supporting expectations for further upward movement of the currency pair as traders now look to US data for fresh momentum.
Technical analysis of the USD/JPY prices
From a technical perspective, the specific price movement range we have witnessed over the past two weeks may still be classified as a bullish momentum phase following a strong rise from the price’s lowest level in March. Additionally, oscillation indicators on the daily chart stabilize in the positive zone and remain far from the overbought area.
This, in turn, indicates that the path of least resistance for the US dollar/Japanese yen pair is to the upside. However, bulls may need a clear breakthrough of the resistance of the sideways trading range, between the levels of 151.94 and 150.99, or above the highest level in decades, before establishing new positions for any further upward movement.
