The Japanese Yen took a stronger stance against the US Dollar for the third consecutive day on Thursday. The ongoing differences in policy between the Bank of Japan (BoJ) and the Federal Reserve (Fed) continue to support the lower-yielding Yen. At the same time, a positive risk environment limits gains for the safe-haven Yen while offering some support to the USD/JPY pair.
Throughout the Asian session on Thursday, the Japanese Yen pulled back slightly from its strong intraday gains against the US Dollar, causing the USD/JPY pair to bounce back over 50 pips from its lowest point since December 12. Despite this movement, any significant depreciation of the Yen remains unlikely, as the market increasingly accepts that the BoJ may continue to raise interest rates. This contrasts sharply with the expectation that the Fed will further reduce borrowing costs by the end of the year. This narrowing rate differential between Japan and the US further encourages flows toward the lower-yielding Yen.
Conversely, concerns that Japan may eventually become a target for US President Donald Trump’s trade tariffs, combined with a prevailing risk-on sentiment in the market, hinder the Yen’s safe-haven appeal. Moreover, the US Dollar has seen a slight rebound from its one-week low on Wednesday, lending some support to the USD/JPY pair. However, with the potential for further policy easing by the Fed and decreasing US Treasury bond yields, the US Dollar could face hurdles. Thus, traders remain cautious, reluctant to declare that the currency pair has reached a near-term low. Attention now turns to the release of the US Weekly Initial Jobless Claims data for any short-term motivation.
Data released on Wednesday indicated an increase in Japan’s real wages, reaffirming the belief that the BoJ will raise interest rates again, strengthening the Yen. On Thursday, Japan’s Finance Minister Katsunobu Kato expressed that inflationary pressures are mounting, though deflation hasn’t yet been fully overcome. Simultaneously, BoJ Board Member Tamura Naoki advocated for faster rate hikes, suggesting the central bank should target at least a 1% rate by the latter half of fiscal 2025. According to LSEG, the market currently sees a 94.8% probability of a quarter-point hike by the BoJ at their September policy meeting. In contrast, there is speculation that the Fed might lower rates twice by year-end amid signs of a cooling US job market.
The Job Openings and Labor Turnover Survey (JOLTS) reported a decrease in job openings from 8.09 million to 7.6 million in December. Additionally, according to the Institute of Supply Management (ISM), economic activity in the US service sector continued to grow in January but at a slower pace than in December. The ISM Services PMI dropped from 54.0 to 52.8, and the Prices Paid Index fell to 60.4 from 64.4, although the Employment Index climbed slightly to 52.3 from 51.3. The weaker services data pushed US Treasury yields lower, putting downward pressure on the USD, which struggled for support even with the ADP report showing an increase in private sector jobs to 183K in January from 176K previously. Fed Vice Chair Philip Jefferson remarked on Thursday that he is content to leave the Fed Funds rate as it is for now, awaiting the overall impact of Trump’s policies. The focus remains on Thursday’s US economic agenda, featuring the Challenger Job Cuts and usual Weekly Initial Jobless Claims data, potentially giving some momentum to the US Dollar. However, market attention is riveted on the upcoming US Nonfarm Payrolls (NFP) report set for release on Friday.
Looking at the USD/JPY from a technical standpoint, the break below the 152.50-152.45 range, including the 100-day and 200-day Simple Moving Averages (SMAs), is seen as a trigger for bearish investors. Falling below the 152.00 mark underscores a negative outlook, hinting at a downward path for the USD/JPY pair. With oscillators on the daily chart not yet reaching the oversold zone, there’s potential for spot prices to slip towards the 151.50 level, heading to the 151.00 mark and then to the 150.60 horizontal support.
If a recovery is attempted, it might encounter strong resistance near the 152.50 confluence support breakpoint. Nevertheless, sustained strength beyond this point could spark a short-covering rally, pushing the USD/JPY pair past the 153.00 mark and testing the next hurdle around the 153.70-153.80 zone. Clearing the 154.00 round figure might negate the negative outlook and sway the near-term bias towards bullish prospects.
Today’s currency tables depict how various major currencies, including the US Dollar, fared against one another, with the USD showing particular strength against the New Zealand Dollar. The percentage changes showcase how currencies stack up, offering insights into daily market dynamics.
