Japanese Yen slightly recovers from its multi-decade low
- The Japanese Yen slightly recovers from its multi-decade low of 160.87 against the US Dollar seen on Wednesday.
- The Yen finds some support after comments from Japanese Finance Minister Shun’ichi Suzuki.
- The US Dollar Index falls back below 106.00 ahead of US Q1 GDP, Durable Goods Orders and weekly Jobless Claims.
The Japanese Yen (JPY) recovers a touch on Thursday after its steep decline the day before when markets started playing a chicken game with the Japanese government. The Japanese Yen sank to 160.87 against the US Dollar (USD), even lower than the level of 160.20 seen at the end of April right before the Japanese Ministry of Finance intervened and pushed the USD/JPY back to 151.95. Early comments during the Asian session on Thursday from Japanese Finance Minister Shun’ichi Suzuki seemingly had more impact than the comments from Masato Kanda, Vice Minister for International Affairs, on Wednesday when the actual move occurred.
Meanwhile, the US Dollar Index (DXY) – which gauges the value of the US Dollar against a basket of six foreign currencies – is also easing ahead of a packed economic calendar. Besides the final reading of the US Gross Domestic Product (GDP) print for Q1, traders will also wait for the Durable Goods Orders numbers for May. As each week, the Initial and Continuing Jobless Claims are set to be released as well on Thursday, making it a very charged US session.
Daily digest market movers: Suzuki seems to have more weight
- At 01:30 GMT, Japanese Finance Minister Shun’ichi Suzuki commented on the recent moves in the Japanese Yen. Suzuki said they are watching currencies closely and will act when needed, though Suzuki declined to comment on specific FX levels
- At 12:30 GMT, most of the Thursday’s important data points will all come out at the same time:
- US Gross Domestic Product numbers for Q1:
- Headline GDP is expected to head to 1.4% from 1.3%.
- Headline Personal Consumption Expenditures (PCE) Prices for the quarter should remain stable at 3.3%.
- Core PCE should remain as well stable at 3.6%.
- Durable Goods Orders for May:
- Headline Durable Goods Orders are expected to contract by 0.1% from the prior positive 0.6% in April.
- Durable Goods Orders ex Transportation are expected to slide lower to 0.2% from 0.4% in April.
- Initial Jobless Claims for the week ending June 21 are expected to remain rather stable at 236,000 from the previous week’s reading of 238,000. Continuing Claims are expected to remain stuck with a marginal move from 1,828,000 to 1,820,000.
- US Gross Domestic Product numbers for Q1:
- Equities are having issues again on Thursday and look to be on track for a negative week overall. US futures are all down less than half a percentage.
- The CME Fedwatch Tool is broadly backing a rate cut in September despite recent comments from Federal Reserve (Fed) officials. The odds now stand at 56.3% for a 25-basis-point cut. A rate pause stands at a 37.7% chance, while a 50-basis-point rate cut has a slim 6.0% possibility.
- The Overnight indexed Swap curve for Japan shows a 64.0% chance of a rate hike on July 31, and a smaller 52.8% chance for a hike on September 20.
- The US 10-year benchmark rate trades near the weekly high at 4.33%.
- The benchmark 10-year Japan Treasury Note (JGB) trades around 1.07%, nearing highs not seen since 2011.
USD/JPY Technical Analysis: Everyone knows it's coming
The USD/JPY is trading off its multi-decade high, freshly printed on Wednesday at 160.81. For now, the words from Japanese Finance Minister Shun’ichi Suzuki are having a bit of an impact, though the question is how long the impact will last as the attention will start to die down. The Japanese government is playing a dangerous game, though, seeming to bet on weak US data on Thursday and Friday, which would trigger a pullback in the DXY and might see Yen strengthen without aid from the Japanese government.
Although the Relative Strength Index (RSI) is overbought in the daily chart, a correction could soon occur. If weaker US data, when that plays out and is undoubtedly not a certainty, will be enough to drive USD/JPY down to 151.91 remains to be seen. Instead, look at the 55-day Simple Moving Average (SMA) at 156.39 and the 100-day SMA at 153.69 for traders to quickly build a pivot on and try to test highs again, testing the Japanese deep pockets again.
USD/JPY: Daily Chart
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.
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