The Japanese Yen (JPY) continues with its relative underperformance against a broadly firmer US Dollar (USD) and drops to a fresh low since mid-January during the Asian session on Thursday. Investors remain concerned about Japan’s ailing fiscal position amid Prime Minister Sanae Takaichi’s new economic stimulus package. Moreover, data released earlier this week showed that Japan’s economy contracted in Q3 for the first time in six quarters, which could put additional pressure on the Bank of Japan (BoJ) to delay raising interest rates and continue to undermine the JPY.
Apart from this, the risk-on impulse is seen as another factor denting the JPY’s safe-haven status. The USD, on the other hand, advances to its highest level since late May amid less dovish Federal Reserve (Fed) expectations and lends additional support to the USD/JPY pair. Meanwhile, the recent JPY fall prompted some verbal intervention from Japanese authorities, which could limit further JPY weakness. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the JPY is to the downside as traders await the delayed US Nonfarm Payrolls (NFP) report for a fresh impetus.
Japanese Yen selling remains unabated amid fiscal concerns and BoJ rate hike uncertainty
- Japan’s Chief Cabinet Secretary Minoru Kihara said in a statement this Thursday that the recent FX moves are sharp, one-sided and that he is watching FX market move with a high sense of urgency. FX market needs to move stably reflecting fundamentals, Kihara added further.
- This comes after Japan’s Finance Minister Satsuki Katayama issued a fresh warning on Wednesday and said that the government was closely monitoring markets with a high sense of urgency. This fuels intervention fears, though it does little to ease the Japanese Yen selling bias.
- Japan’s yield curve has steepened sharply as investors priced in a bigger-than-anticipated spending package from the new Prime Minister Sanae Takaichi. Goushi Kataoka – member of a key government panel – said earlier this week that Japan must compile a stimulus of around ¥23 trillion.
- Kataoka added on Wednesday that the Bank of Japan is unlikely to raise interest rates before March, arguing policymakers must first confirm that a major fiscal package is lifting domestic demand. This signals the Takaichi administration’s preference for interest rates to stay low.
- Government data released on Monday showed that Japan’s economy contracted for the first time in six quarters during the July-September period. This further tempers expectations that the BoJ will hike rates soon and backs the case for a further depreciating move for the JPY.
- A Reuters poll shows a narrow majority of economists expect the BoJ to raise rates to 0.75% in December, with all forecasters seeing at least that level by end-Q1. JPY weakness and imported inflation risks are reinforcing the case as wage growth is expected to remain high.
- The US Dollar moves back closer to its highest level since May, touched earlier this month amid less dovish Federal Reserve expectations. In fact, chances of another rate cut in December fell after the October FOMC meeting minutes showed that members were divided about how to proceed.
- Traders now look forward to the delayed release of the US Nonfarm Payrolls (NFP) report for more cues about the Fed’s rate-cut path. This, in turn, will play a key role in influencing the USD and providing some impetus to the USD/JPY pair later during the North American session.
USD/JPY bullish technical setup backs the case for a further near-term appreciating move
The daily Relative Strength Index (RSI) is flashing slightly overbought conditions and holding back traders from placing fresh bullish bets around the USD/JPY pair. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for any further appreciating move.
Any corrective slide, however, might now find decent support near the 156.65-156.60 region, below which the USD/JPY pair could extend the fall towards the 156.00 mark. The latter should act as a pivotal point, and a sustained weakness below might prompt some technical selling, which should pave the way for deeper losses.
On the flip side, the 157.40-157.45 region could act as an immediate hurdle, above which the USD/JPY pair could accelerate the momentum towards reclaiming the 158.00 round figure. The next relevant resistance is pegged near mid-158.00s before spot prices aim to test the January swing high, around the 159.00 neighborhood.
Japanese Yen Price This week
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.91% | 0.85% | 1.76% | 0.24% | 0.83% | 1.26% | 1.59% | |
| EUR | -0.91% | 0.02% | 1.21% | -0.67% | -0.11% | 0.34% | 0.67% | |
| GBP | -0.85% | -0.02% | 0.94% | -0.69% | -0.13% | 0.33% | 0.65% | |
| JPY | -1.76% | -1.21% | -0.94% | -1.50% | -0.91% | -0.50% | -0.21% | |
| CAD | -0.24% | 0.67% | 0.69% | 1.50% | 0.60% | 1.01% | 1.35% | |
| AUD | -0.83% | 0.11% | 0.13% | 0.91% | -0.60% | 0.46% | 0.79% | |
| NZD | -1.26% | -0.34% | -0.33% | 0.50% | -1.01% | -0.46% | 0.33% | |
| CHF | -1.59% | -0.67% | -0.65% | 0.21% | -1.35% | -0.79% | -0.33% |
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 Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
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