- The Japanese yen attracts buyers on Monday and recovers part of the heavy losses incurred last week.
- Diminished prospects of the Bank of Japan exiting its hard-loss policy in January are limiting any further upside.
- Higher US bond yields continue to support the US dollar and provide some support to the USD/JPY pair.
The Japanese Yen (JPY) is attracting some safe-haven flows on the first day of the new week and pulling USD/JPY away from its three-week high, around the 146.00 area it touched on Friday. Against the backdrop of China’s economic woes and geopolitical risks, the diminishing prospects of the Fed facilitating a more aggressive policy are weighing on investor sentiment and benefiting the traditional safe-haven Japanese yen.
However, growing acceptance that the Bank of Japan (BoJ) will not scrap its negative interest rate policy at its January 22-23 meeting in the wake of the New Year’s Day earthquake in Japan, is capping any further gains for the Japanese yen. On the other hand, the US dollar is struggling to capitalize on its recent good recovery from multi-month lows amid bets that the Federal Reserve will start cutting interest rates as early as March.
However, incoming US economic data pointed to a still resilient economy and gave the Fed more scope to keep interest rates high for longer. This, coupled with recent hawkish comments from Fed officials, remains supportive of rising US Treasury yields. This in turn acts as a tailwind for the USD and provides support for USD/JPY, warranting some caution before placing directional bets.
Market movers in daily summary: JPY benefits from revived safe-haven demand, lacks bullish conviction
- The Japanese yen fell more than 2% last week and recorded its worst weekly performance since June 2022 amid fading hopes for an imminent shift in the Bank of Japan’s policy shift later this month.
- A strong US jobs report for December increased uncertainty about the path of interest rate cuts by the Federal Reserve, supporting the US dollar and lifting the USD/JPY pair to a three-week high on Friday.
- The main NFP reading showed that the US economy added 216,000 new jobs last week compared to 170,000 expected, while the unemployment rate remained steady at 3.7% versus a slight rise to 3.8% expected.
- These optimistic data were offset by an Institute for Supply Management (ISM) survey, which indicated that the US services sector, which represents more than two-thirds of the economy, declined last month.
- The ISM non-manufacturing index fell to 50.6 in December – the lowest reading since May – and the employment subcomponent fell to 43.3 – the lowest since July 2020 – from 50.7 in November.
- Separately, US factory orders rose more than expected in November, up 2.6% after falling 3.4% in October, although they did little to impress dollar bulls or provide any meaningful momentum.
- The data suggested that the world’s largest economy showed pockets of weakness, although it remained generally resilient, forcing investors to reduce their bets on more aggressive easing by the Federal Reserve.
- In addition, Dallas Fed President Lori Logan noted that if the US central bank does not maintain sufficiently tight financial conditions, there is a risk that inflation will rise again, reversing progress.
- It comes after Richmond Fed President Thomas Barkin last week expressed confidence that the economy was on track for a soft landing and said raising interest rates was still on the table.
- However, markets still expect a higher chance of the Fed’s first rate cut at its March policy meeting, as well as cumulative 25 basis points of interest rate cuts for 2024.
- This hinders USD bulls from taking positions in preparation for any further upward movement and keeps the lid on USD/JPY as focus now turns to US consumer inflation numbers on Thursday.
- An agreement on a key spending level was reached between House Speaker Mike Johnson and Senate Majority Leader Chuck Schumer, breaking an impasse to avoid a government shutdown.
Technical Analysis: USD/JPY remains in a defensive position below the mid-144.00 areas, and downside potential appears limited.
Technically, Friday’s failure near the 50% Fibonacci retracement level of the November-December decline calls for caution for bullish traders. Moreover, the oscillators on the daily chart – despite recovering from bearish territory – have not yet confirmed a positive bias. Therefore, it would be wise to wait for some follow-on buying after the multi-week high, around the 146.00 mark, before entering into positions to extend the recent USD/JPY recovery from the 140.25 area, or multi-month low. Touched in December. The subsequent upward move has the potential to lift spot prices beyond the 146.55 intermediate hurdle, towards reclaiming the 147.00 mark on its way to the 147.40-147.45 confluence zone, which includes the 61.8% Fibonacci level. and the 100-day simple moving average (SMA).
On the flip side, the 144.00 level is likely to protect the immediate downside ahead of Friday’s swing bottom around the 143.80 area and the 200-day simple moving average, currently pegged near the 143.25 area. A convincing breakout below the latter could shift the near-term bias back in favor of bearish traders and leave USD/JPY vulnerable to testing the next related support near the 142.35-142.30 horizontal area before eventually falling to the round 142.00 figure. The downward path could extend further towards the 141.75 support level on its way to the 141.00 mark and multi-month lows, around the 140.25 area.
Japanese yen price today
The table below shows how much the Japanese Yen (JPY) has changed against the major currencies listed today. The Japanese yen was the strongest against the US dollar.
| American dollar | euro | GBP | Bastard – scoundrel | Australian dollar | JPY | New Zealand dollar | Swiss franc | |
| American dollar | -0.06% | -0.04% | -0.04% | -0.15% | -0.27% | -0.09% | -0.06% | |
| euro | 0.06% | 0.02% | 0.03% | -0.08% | -0.20% | -0.02% | 0.00% | |
| GBP | 0.04% | -0.02% | 0.01% | -0.10% | -0.22% | -0.04% | -0.03% | |
| Bastard – scoundrel | 0.04% | -0.02% | 0.00% | -0.11% | -0.21% | -0.05% | -0.03% | |
| Australian dollar | 0.15% | 0.08% | 0.11% | 0.11% | -0.10% | 0.06% | 0.09% | |
| JPY | 0.24% | 0.21% | 0.21% | 0.24% | 0.13% | 0.19% | 0.19% | |
| New Zealand dollar | 0.10% | 0.02% | 0.04% | 0.05% | -0.06% | -0.18% | 0.01% | |
| Swiss franc | 0.06% | 0.00% | 0.02% | 0.03% | -0.08% | -0.19% | -0.01% |
The heat map shows the percentage changes in major currencies versus each other. The base currency is chosen from the left column, while the counter currency is chosen from the top row. For example, if you select 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 the EUR (base)/JPY (quote).
Federal Reserve Bank Questions and Answers
Monetary policy in the United States is shaped by the Federal Reserve Bank (Fed). The Federal Reserve has two missions: achieving price stability and promoting full employment. The primary tool for achieving these goals is adjusting interest rates.
When prices rise too quickly and inflation is above the Fed’s 2% target, it raises interest rates, which increases borrowing costs throughout the economy. This causes the US dollar (USD) to strengthen because it makes the United States a more attractive place for international investors to park their money.
When inflation falls below 2% or when the unemployment rate is very high, the Fed may lower interest rates to encourage borrowing, which affects the dollar.
The Federal Reserve (Fed) holds eight policy meetings annually, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC meeting is attended by twelve Fed officials – the seven members of the Board of Governors, the head of the New York Fed, and four of the remaining eleven Regional Reserve Bank presidents, who serve one-year terms on a rotating basis. .
In extreme cases, the Fed may resort to a policy called quantitative easing (QE). Quantitative easing is the process by which the Federal Reserve dramatically increases the flow of credit into a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is very low. It was the Fed’s weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. Quantitative easing usually weakens the US dollar.
Quantitative tightening (QT) is the reverse process of quantitative easing, where the Fed stops purchasing bonds from financial institutions and does not reinvest capital from bonds it holds outstanding, to purchase new bonds. This is usually positive for the value of the US dollar.