■ The Japanese Yen ticks lower in the wake of the BoJ policy uncertainty and the risk-on mood.
■ Friday’s disappointing US data keeps the USD bulls on the defensive and might cap USD/JPY.
■ Traders look to the Tokyo CPI report on Tuesday ahead of this week’s key US economic data.
The Japanese Yen (JPY) kicks off the new week on a softer note and remains depressed below the 150.00 psychological mark against its American counterpart during the Asian session. The Bank of Japan (BoJ) Governor Kazuo Ueda reiterated on Friday that it was too early to declare victory on inflation. This comes on the back of a technical recession in Japan, which could force the BoJ to delay its plan to tighten the monetary policy. Apart from this, the prevalent risk-on environment is seen undermining the safe-haven JPY. Investors, however, seem convinced that the BoJ will exit negative interest rates if wage negotiations result in bumper pay hikes. This is holding back traders from placing aggressive bearish bets around the JPY.
Meanwhile, the US Dollar (USD) is weighed down by Friday's disappointing macro data and less hawkish comments by a slew of influential Federal Reserve (Fed) officials. Traders also seem reluctant and prefer to wait for more clues about the timing of when the Fed will begin cutting interest rates, which further contributes to capping the upside for the USD/JPY pair. There isn't any relevant market-moving US economic data due for release on Monday and hence, the focus will remain glued to the release of the Tokyo Core CPI report on Tuesday. Investors this week will seek further cues from Fed Chair Jerome Powell's semi-annual congressional testimony on Wednesday and Thursday ahead of the US Nonfarm Payrolls (NFP) on Friday.
Daily digest market movers: Japanese Yen remains depressed on mixed BoJ signals, positive risk tone
Mixed signals from Bank of Japan policy makers last week, along with the underlying bullish sentiment around the equity markets, continue to act as a headwind for the safe-haven Japanese Yen.
BoJ board member Hajime Takata said last week that the central bank must consider overhauling its ultra-loose monetary policy as the achievement of the 2% inflation target is becoming in sight.
BoJ Governor Kazuo Ueda, however, said it was too early to conclude that inflation was close to sustainably meeting the 2% target and stressed the need to scrutinize more data on the wage outlook.
Furthermore, a recession in Japan, along with a slightly warmer domestic consumer inflation, adds to the uncertainty about the BoJ's future policy decisions and keeps the JPY traders on the sidelines.
Media reports, citing sources, suggest that the Japanese government has begun considering declaring an official end to deflation two decades after it acknowledged that prices were falling moderately
The US Dollar is undermined by Friday's disappointing ISM Manufacturing PMI, which contracted more than anticipated and came in at 47.8 for February as compared to 49.1 in the previous month.
Other details of the report showed that the Employment Index declined to 45.9 from 47.1, the New Orders Index retreated to 49.2 from 52.5 and the Prices Paid Index edged lower to 52.5 from 52.9.
Adding to this, the University of Michigan’s Consumer Sentiment Index also fell short of estimates and dipped to 76.9 in February, though inflation expectations were in line with the expectations.
Fed Governor Adriana Kugler noted that progress on disinflation will continue, while Richmond Fed President Thomas Barkin said that overall inflation is likely to come down over the next few months.
Chicago Federal Reserve President Austan Goolsbee said that the policy rate is quite restrictive, and Dallas Fed President Lorie Logan said that it will be appropriate to slow the pace of the balance sheet shrinking.
The US Treasury bond yields declined on Friday after Fed Governor Christopher Waller’s comments, saying that he would like the central bank to boost its share of short-term Treasuries.
Investors now look forward to the release of the Tokyo CPI report on Tuesday for a fresh impetus, ahead of the month start key US macro data, including the crucial Nonfarm Payrolls on Friday.
Technical analysis: USD/JPY must surpass 150.80-150.90 hurdle for bulls to seize control
From a technical perspective, Friday's failure ahead of the 150.80-150.90 pivotal resistance and the lack of any meaningful buying warrants some caution for bullish traders. The subsequent pullback, however, showed some resilience below the 150.00 mark. Moreover, oscillators on the daily chart are holding in the positive territory and support prospects for some meaningful upside for the USD/JPY pair. That said, it will still be prudent to wait for a sustained strength beyond the aforementioned barrier before placing fresh bullish bets. Spot prices might then climb to the 151.45 intermediate resistance en route to the 152.00 neighbourhood, or a multi-decade peak set in October 2022 and retested in November 2023.
On the flip side, any meaningful downfall is likely to find decent support and attract fresh buyers near last week's swing low, around the 149.20 area. Some follow-through selling, leading to a break below the 149.00 mark, might shift the bias in favour of bearish traders and make the USD/JPY pair vulnerable. Spot prices might then decline to the 148.30 support en route to the 148.00 round figure and the 100-day Simple Moving Average (SMA), currently pegged near the 147.80 region.
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