- The Japanese Yen strengthened for the second straight day against the USD on Friday.
- The risk-off mood, along with intervention fears, boosts demand for the safe-haven JPY.
- The emergence of some USD buying helps limit any further losses for the USD/JPY pair.
- Traders now look to the release of the US jobs data (NFP) for some meaningful impetus.
The Japanese Yen (JPY) started losing traction after rising to over a two-week high against its American counterpart during the Asian session on Friday and is now trading with only modest intraday gains. The intraday downfall, however, is likely to remain limited in the wake of persistent geopolitical tensions stemming from the protracted Russia-Ukraine war and conflicts in the Middle East. Adding to this, the overnight hawkish remarks from Federal Reserve (Fed) officials temper investors’ appetite for riskier assets, which might continue to underpin the safe-haven JPY.
Meanwhile, investors remain on high alert amid the possibility of intervention by Japanese authorities to prop up the domestic currency. Furthermore, the Bank of Japan Governor Kazuo Ueda signaled a chance of a rate hike if the JPY moves affect inflation and wages, which should further contribute to limiting losses for the JPY. Traders might also prefer to wait on the sidelines ahead of the release of the US monthly employment details. The popularly known as the Nonfarm Payrolls will play a key role in influencing the USD and provide some meaningful impetus to the USD/JPY pair.
Daily Digest Market Movers: Japanese Yen might continue to draw support from geopolitical risks, intervention fears
- Iran has vowed to retaliate against the Israeli attack on its embassy in Syria, raising the risk of a further escalation of geopolitical tensions in the Middle East and boosting the safe-haven Japanese Yen.
- Bank of Japan Governor Kazuo Ueda reportedly said on Friday that the central bank could respond with monetary policy if FX moves have an impact on the wage-inflation cycle in a way that is hard to ignore.
- Ueda added that the chance of sustainably, stably achieving BoJ’s 2% inflation target is in sight and is likely to keep heightening as this year’s pay raises in annual wage negotiations could push up prices.
- Former top Japanese currency official Tatsuo Yamazaki said on Thursday that authorities will likely intervene in the currency market if the JPY breaks out of the range and weakens beyond 152 per dollar.
- Japan’s Finance Minister Shunichi Suzuki reiterated that he is closely watching foreign exchange moves with a high sense of urgency and won’t rule out any options to deal with excessive FX volatility.
- Data released earlier today showed that Japanese household spending fell 0.5% in February from a year earlier, down for the 12th straight month, though better than estimates for a 3.0% decline.
- The US Department of Labor reported on Thursday that the number of Americans applying for unemployment insurance increased to 221K in the week ending March 30 against 214K expected.
- This pointed to signs of cooling in the labor market and reinforced market expectations that the Federal Reserve will start cutting interest rates in June, dragging the US Dollar to a two-week low.
- Meanwhile, Minneapolis Fed President Neel Kashkari said that he penciled in two interest rate cuts this year and that rate cuts might not be required if inflation continues to move sideways.
- Adding to this, Richmond Fed President Thomas Barkin noted that he was open to interest rate cuts once it is clear progress on inflation will be sustained and applied more broadly in the economy.
- The hawkish outlook keeps the US Treasury bond yields elevated, which allowed the USD to stage a late recovery, though the momentum faded rather quickly during the Asian session on Friday.
- Investors now look forward to the closely-watched US monthly jobs data, popularly known as the Nonfarm Payrolls (NFP) report, for cues about the Fed’s rate cut path and some meaningful impetus.
Technical Analysis: USD/JPY could attract sellers at higher levels, slide below 151.00 was seen as fresh trigger for bears
From a technical perspective, a convincing break and acceptance below the 151.00 mark could be seen as a breakdown through a short-term trading range. That said, oscillators on the daily chart – despite losing traction – are still holding in positive territory. Hence, any subsequent slide is more likely to find decent support near the 150.25 region. This is closely followed by the 150.00 psychological mark, which, if broken decisively, will be seen as a fresh trigger for bearish traders and drag the USD/JPY pair towards the 149.35-149.30 region en route to the 149.00 mark.
On the flip side, the 151.30-151.35 zone now seems to act as an immediate hurdle ahead of the 151.70 area and the multi-decade high, near the 152.00 mark. The latter represents a possible intervention level and should act as a strong near-term barrier. A sustained strength beyond, however, might trigger a fresh bout of a short-covering move and lift the USD/JPY pair towards the 153.00 round figure.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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