The Japanese yen (JPY) weakened against the US dollar in the early hours of Thursday’s trading, trading near 151.65, remaining close to its lowest level in decades reached last week.
After the Bank of Japan struck a pessimistic tone at the end of its March meeting and did not provide any guidance on future policy steps.
Concurrently with the generally positive movement in stock markets, which weakens the Japanese yen, considered a safe haven, and helps the dollar/yen pair to rise with each drop near the 151.55 zone.
In my view, investors will remain cautious amid expectations that Japanese authorities will intervene in the market to prevent a decline in the local currency.
This may deter strong positions as investors prefer to wait for further signals regarding the path of Federal Reserve interest rate cuts before determining the near-term direction. Therefore, the focus remains on the release of the Non-Farm Payrolls (NFP) report on Friday.
I believe Federal Reserve policymakers do not see any urgent need to lower interest rates because labor market conditions are strong and the economic outlook is robust. Federal Reserve Bank of Cleveland President Loretta Mester said yesterday that the central bank sees more risks in cutting interest rates too early. Federal Reserve Chairman Powell stated, “With labor markets and economic growth very strong, we don’t need to take risks.” At the same time, he sees three interest rate cuts as “reasonable” this year.
At the same time, I see the Japanese yen as weak as investors lack confidence that the Bank of Japan will continue to tighten its policy due to uncertainty about the wage growth crisis. It seems that investors have absorbed fears of Japanese intervention in the foreign exchange market to support the Japanese yen, and the markets are pricing that in.
However, the current yen decline lacks continuity and remains confined to a two-week trading range between 151.94 and 150.99 amid cautious expectations from the Bank of Japan (BoJ), which says monetary policy will remain accommodative for some time, a key factor that continues to negatively pressure the Japanese yen. However, I believe expectations of Japanese authorities intervening in the markets to support the local currency may deter speculators on the Japanese yen from placing strong bets in the near term.
In my view, risk sentiments and prevailing market concerns are reasons to support the strength of the Japanese yen as a haven, which, along with the weak movement of the US dollar, may contribute to limiting the upward trend of the dollar/yen pair. Concurrently the markets lowered their expectations for an early rate cut by the Federal Reserve, indicating that the gap between US and Japanese interest rates will remain large. This may lead to diverting liquidity flows away from the Japanese yen and supporting expectations for further upward movement of the currency pair as traders now look to US data for fresh momentum.
Technical analysis of the USD/JPY prices
From a technical perspective, the specific price movement range we have witnessed over the past two weeks may still be classified as a bullish momentum phase following a strong rise from the price’s lowest level in March. Additionally, oscillation indicators on the daily chart stabilize in the positive zone and remain far from the overbought area.
This, in turn, indicates that the path of least resistance for the US dollar/Japanese yen pair is to the upside. However, bulls may need a clear breakthrough of the resistance of the sideways trading range, between the levels of 151.94 and 150.99, or above the highest level in decades, before establishing new positions for any further upward movement.
USD/JPY – Prices Chart –-XS.com MT4.
On the other hand, any strong downward movement may continue to target strong support near 151.00 or the lower end of the short-term trading range. A clear breakthrough could lead to declines towards 150.80 and 150.75, which now turn into support, with the potential to pull the USD/JPY pair towards the next relevant support zone near 150.25. If this level is breached, further corrective declines towards the 149.35 and 149.30 areas could occur, ultimately reaching the long-term bottom at 149.00.
I believe that the level of 152 is critical at this stage, especially in a scenario where the Federal Reserve begins to cut interest rates this year. If the market does not anticipate any rate cuts by the Federal Reserve this year, the pair will rise to higher levels.
The market is fully aware that everything depends on the Federal Reserve. If the Federal Reserve starts cutting interest rates, everything will be fine, but if the Federal Reserve does not cut rates this year, there will be nothing the Japanese government can do to save the yen.
Support levels: 151.43 – 151.28 – 151.00
Resistance levels: 151.71 – 151.86 – 152.10
