USD/JPY Analysis Today 03/04: Japan’s Currency Comments

The overall trend remains bullish and may continue as such until intervention from Japan in the markets to prevent further currency depreciation, alongside the negative US job figures at the end of the week.

  • Hopes for an early US interest rate cut by the Federal Reserve were dashed again at the start of this week’s trading after more upbeat data from the US.
  • As a result, the USD/JPY currency pair remained stable around the 151.80 resistance level, which is close to the levels where talk of Japanese intervention in the markets to prevent further collapse of the currency is increasing.

USD/JPY Analysis Today 03/04: Japan's Currency Comments (Graph)

According to the results of the economic calendar, the US ISM manufacturing index rose more than expected in March, rising above 50 to the expansionary zone for the first time since September 2022. In addition, the sub-index of prices paid also rose, hitting its highest level since July 2022, in a further sign that inflationary pressures have not completely dissipated. Moreover, the strong PMI reading follows last Friday’s strong US core personal consumption spending reading and somewhat hawkish comments from Fed Chair Powell. Furthermore, the CPI and PCE data continue to support the view that inflation is still largely on a downward path, albeit increasingly shallow, other indicators are confirming the Fed’s caution about price expectations.

Subsequently, an early US rate cut in June started to look doubtful, and the probability of a 25-basis point cut in the federal funds rate fell to around 60%. More importantly, investors are now pricing in fewer cuts for 2024 compared to what the latest FOMC dot-plots projected just two weeks ago.

On the other hand, Treasury bond yields rose on the back of the data, as the yield on 10-year bonds rose by 13.5 basis points. Also, the jump in yields led to a new rise in the price of the US dollar, which extended its gains to its highest levels in four and a half months against a basket of currencies early Tuesday.

In contrast, the euro and sterling fell to their lowest levels in a month and a half against the US dollar as the European Central Bank continued to price in a rate cut in June. Also, investor confidence grew that the Bank of England would be able to start an easing cycle in the summer. This contrasts with the growing uncertainty surrounding the timing of the Fed’s first move.

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At the same time, the price of the Japanese yen remained confined within a narrow range, hovering around 151.70 to the US dollar, as traders were alert about possible intervention by the Japanese authorities near the 152 level. In this regard, the Japanese Finance Minister reiterated on Tuesday that officials “will take appropriate action.” Against excessive volatility,” which led to a slight rise in the value of the yen.

There is no change in our technical view on the performance of the USD/JPY currency pair. Obviously, the overall trend remains bullish and may continue as such until intervention from Japan in the markets to prevent further currency depreciation, alongside the negative US job figures at the end of the week.

Particularly, the gains of the upward trend have driven all technical indicators towards levels saturated with strong buying. As mentioned, the divergence between the policies of the Bank of Japan and the Federal Reserve, along with economic performance, continues to support the upward trend for some time. Currently, the nearest resistance levels are 151.85, 152.30, and 153.00 respectively.

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