The Japanese Yen (JPY) extended its decline against the US Dollar (USD) for the fifth consecutive day on Monday, hitting a one-and-a-half-week low amidst lingering uncertainty surrounding the Bank of Japan‘s (BoJ) monetary policy. This downtrend comes as BoJ Governor Kazuo Ueda recently offered a somewhat cautious outlook on the economy, hinting that discussions about scaling back the substantial monetary stimulus are underway.
Adding to the downward pressure on the JPY, the BoJ announced an unscheduled bond operation for the week, intending to purchase 3 trillion yen of Japanese government bonds (JGBs). This move underscores the continuation of the BoJ’s accommodative policy stance, further dampening the JPY and aiding the USD/JPY pair’s upward momentum, which had breached the 149.00 mark last week.
Despite speculation that positive outcomes from spring wage negotiations could prompt the BoJ to consider exiting its negative interest rate policy as early as April, subdued demand for the USD amid uncertainty over the Federal Reserve’s rate-cutting trajectory may temper further appreciation of the USD/JPY pair. Market participants are also exercising caution ahead of the BoJ’s decision on Tuesday, followed by the outcome of the two-day Federal Open Market Committee (FOMC) policy meeting on Wednesday, which is expected to provide fresh directional cues.
In addition to monetary policy considerations, data released on Monday revealed that Machinery Orders in Japan fell more than expected by 1.7% in January, adding to the negative sentiment surrounding the JPY. However, the downside risks are expected to be contained.
Statements from Japan’s Chief Cabinet Secretary Yoshimasa Hayashi and Rengō – Japan’s largest trade union confederation – suggest an expectation for the BoJ to closely coordinate with the government and adjust policy measures to sustainably achieve its inflation target alongside wage increases. Notably, average wage demands exceeded 5% for the first time since 1994, potentially hastening the BoJ’s departure from negative interest rates and limiting JPY losses.
Meanwhile, hotter-than-expected US producer and consumer price data from the previous week have led investors to scale back expectations for aggressive policy easing by the Federal Reserve, lending support to the USD.
With investors adopting a wait-and-see approach ahead of key monetary policy updates from the BoJ and the Fed, the USD/JPY pair’s next directional move remains contingent on the outcome of these events.
Technical analysis indicates bullish momentum for the USD/JPY pair, with a potential move towards reclaiming the psychological 150.00 mark. Conversely, downside support is expected around the 149.00 level, with further support near 148.30 and 148.00, while a break below could shift the bias towards bearish territory.
