The Japanese Yen (JPY) is grappling with renewed selling pressure following a modest pullback from its year-to-date low, remaining on the defensive against the US Dollar (USD) as it enters the European session. The Bank of Japan (BoJ) Governor Kazuo Ueda’s recent statement, emphasizing that it is premature to declare victory on inflation, coupled with Japan’s technical recession, suggests a potential delay in the BoJ’s plan to tighten monetary policy, further undermining the JPY.
Despite these challenges, reports of the Japanese government contemplating an official end to deflation provide a glimmer of hope. Market participants are speculating that robust pay hikes in Japan might trigger a wage-price spiral, potentially leading the BoJ to reconsider its ultra-loose monetary policy. However, a softer tone in the equity markets and subdued US Dollar demand are expected to mitigate JPY losses and prevent substantial appreciation of the USD/JPY pair.
Traders are displaying caution and refraining from aggressive directional bets, opting to await the release of the Tokyo Consumer Price Index (CPI) report on Tuesday. The upcoming week holds additional significance with Fed Chair Jerome Powell’s congressional testimony and crucial US macro data, including the highly anticipated Nonfarm Payrolls (NFP) report on Friday, likely influencing the USD/JPY pair.
Japanese Yen Remains Under Pressure Amid Divergent BoJ-Fed Policy Expectations
Mixed signals from BoJ policymakers persist, contributing to the Japanese Yen’s struggle against the USD. BoJ board member Hajime Takata suggests a potential overhaul of the ultra-loose monetary policy, while Governor Kazuo Ueda remains cautious about concluding the proximity of inflation to the 2% target, emphasizing the need for further wage outlook scrutiny.
Japan’s recession and a slightly warmer domestic consumer inflation add uncertainty to the BoJ’s future policy decisions, keeping JPY traders on the sidelines. Reports hinting at an official end to deflation offer a positive narrative, yet the USD’s weakness due to Friday’s disappointing ISM Manufacturing PMI tempers potential JPY losses.
Fed Governor Adriana Kugler and Richmond Fed President Thomas Barkin express confidence in continued progress on disinflation, while Chicago Federal Reserve President Austan Goolsbee notes a restrictive policy rate. Dallas Fed President Lorie Logan suggests a slowing pace of balance sheet shrinking. US Treasury bond yields decline after Fed Governor Christopher Waller advocates an increase in the central bank‘s share of short-term Treasuries.
Traders eagerly anticipate the Tokyo CPI report on Tuesday and key US macro data, particularly the Nonfarm Payrolls on Friday, for further market guidance.
Technical Analysis: USD/JPY Faces Resistance Near YTD Peak
From a technical perspective, USD/JPY encountered resistance around the 150.80-150.90 pivotal level, failing to sustain a breakthrough. Despite a subsequent pullback below 150.00, positive oscillators on the daily chart suggest potential upside. Bullish traders are advised to exercise caution, awaiting sustained strength beyond the resistance barrier, which could propel spot prices to the 151.45 intermediate resistance and potentially to the 152.00 neighborhood.
Conversely, a meaningful decline may find support near last week’s swing low around 149.20. A breach below 149.00 could shift the bias in favor of bearish traders, leading to a decline towards the 148.30 support and the 148.00 round figure, with additional support from the 100-day Simple Moving Average near the 147.80 region.
