Japanese Yen rallies to just shy of 157.00 versus the USD

  • The Japanese Yen weakens across the board after BoJ announced its policy decision. 
  • A shortlived spike in the Yen may be testament to an attempt by the Japanese authorities to intervene.
  • US PCE Price Index shows higher-than-expected inflation but does little to impact USD/JPY which almost touches 157.00.

The Japanese Yen (JPY) plummets to a fresh multi-decade low of 156.99 against its American counterpart on Friday, after the Bank of Japan (BoJ) decided to leave policy settings unchanged and US data continued to show rising inflation in the US.

The Yen failed to gain any respite from BoJ Governor Kazuo Ueda’s remarks during the post-meeting press conference. Despite what looks like an intervention attempt on Friday morning the JPY only temporarily recovered and a heavy selling bias remains. The BoJ’s uncertain rate outlook, signs that inflation in Japan is cooling, and a generally positive tone around the equity markets turn out to be key factors undermining the safe-haven JPY. 

Apart from this, expectations that the interest rate differential between Japan and the United States (US) will remain wide for some time suggest that the path of least resistance for the JPY is to the downside. Meanwhile, the US Dollar (USD) attracts fresh buyers and reverses a part of the previous day’s weaker US GDP print-inspired slide to a two-week low amid bets that the Federal Reserve (Fed) will keep rates higher for longer.

USD/JPY continues rising after US core PCE data

USD/JPY continued rising after the release of March core Personal Consumption Expenditures Price Index (PCE), the US Federal Reserve’s (Fed) preferred gauge of inflation. 

US Core PCE showed a higher-than-expected reading of 2.8% YoY, when analysts had expected 2.6% from 2.8% previously, according to the US Bureau of Economic Analysis (BEA). On month, core PCE rose 0.3% in line with expectations and the same as previously. 

The data only marginally changed the probability of the Federal Reserve making an interest-rate cut in September from 59% on Friday morning prior to the event to 60% after. 

Other data in the PCE report showed the headline Personal Consumption Expenditures Price Index rising to 2.7%, beating estimates of 2.6% and a prior reading of 2.5%. On month, the PCE rose 0.3% as expected and the same as previous. 

Personal Income rose 0.5% as forecast and Personal Spending 0.8%, beating estimates of 0.6% and the same as the 0.8% previous. 

Daily Digest Market Movers: Japanese Yen continues losing ground as bulls seem unimpressed by BoJ’s policy outlook

  • Government data showed on Friday that consumer inflation in Tokyo decelerated sharply in April, which, along with the Bank of Japan’s decision to maintain the status quo, undermines the Japanese Yen. 
  • The headline Tokyo Consumer Price Index (CPI) rose 1.8% YoY in April, while core CPI (ex-Fresh Food, Energy) increased by 1.8% YoY during the reported month, both missing consensus estimates. 
  • A core CPI gauge that excludes both fresh food and energy prices and is closely watched by the BoJ as a gauge of underlying inflation fell below the 2% target for the first time since September 2022. 
  • The Japanese central bank, as was widely anticipated, left its short-term interest rates unchanged at 0%-0.10% and expects accommodative monetary conditions to continue for the time being.
  • The BoJ, meanwhile, lowered its economic growth forecast for the current fiscal year 2024 to 0.8% from the 1.2% estimated previously, while CPI ex fresh food for FY 2024 is seen at 2.8% vs 2.4% prior.
  • In the post meeting press conference, BoJ Governor Kazuo Ueda noted that the chance of a prolonged weakness in the JPY is not zero and that the achievement of 2% inflation target is extremely close. 
  • The US Commerce Department reported on Thursday that the world’s largest economy grew at a 1.6% annualized rate in the January-March period, marking the weakest reading since mid-2022. 
  • This pointed to a significant loss of momentum at the start of 2024, though was offset by a rise in the underlying inflation, which reaffirmed bets that the Federal Reserve will keep rates higher for longer. 
  • A Jiji report indicated that the BoJ might buy fewer bonds, pushing Japan’s five-year bond yield to the highest level since April 2011, albeit does little to provide any meaningful boost to the JPY. 
  • Japan’s Finance Minister Shunichi Suzuki reiterated that he is closely monitoring FX fluctuations and that he will prepare to take full steps on the currency, though declined to comment on details of the policy. Signs over the last few hours of attempts to prop up the Yen appear to have failed with USD/JPY returning to its session highs. 

Technical Analysis: USD/JPY needs to pause and consolidate before the next leg up amid extremely overbought RSI

From a technical perspective, momentum beyond the 156.00 mark could be seen as a fresh trigger for bullish traders and supports prospects for additional gains. That said, the extremely overbought Relative Strength Index (RSI) on the daily chart makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for the next leg of a positive move. 

Meanwhile, any corrective decline below the 156.00 mark now seems to find decent support near the 155.35-155.30 region. This is followed by the 155.00 psychological mark and a short-term trading range resistance breakpoint, around the 154.70 area. A break below the latter has the potential to drag the USD/JPY pair to the 154.00 round figure en route to last Friday’s swing low, around the 153.60-153.55 zone.

(This story was corrected on April 26 at 14:50 GMT to say that the USD pair reached 157.00 not 167.00)

Japanese Yen FAQs

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.

The BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.