The Japanese Yen (JPY) faces continued downward pressure for the seventh consecutive day, plunging to a fresh four-month low against the US Dollar (USD) as European markets commence trading on Wednesday. The Bank of Japan‘s (BoJ) indication of maintaining accommodative financial conditions without offering clear guidance on future policy steps or the pace of normalization exacerbates the JPY’s decline. Additionally, the prevailing risk-on sentiment diminishes the JPY’s safe-haven appeal.
In contrast, the USD remains strong near a two-week high, fueled by the growing consensus that the Federal Reserve (Fed) will maintain its stance on higher interest rates to combat inflation. This bolstering of the USD/JPY pair is further compounded by the absence of guidance for further tightening from the BoJ, pushing the pair beyond the mid-151.00s.
The sharp depreciation of the JPY may prompt intervention by Japanese authorities, potentially capping gains for the currency pair as traders eagerly anticipate the outcome of the highly-awaited Federal Open Market Committee (FOMC) policy meeting.
The lack of forward guidance from the BoJ disappointed hawkish traders, leading to further weakness in the JPY, reaching its lowest level since November 2023 on Wednesday. While the BoJ announced the end of its negative interest rate policy and its first rate increase since 2007, it pledged to maintain accommodative monetary conditions for the foreseeable future.
Speculation surrounding the Fed’s adjustment of its forward guidance, with expectations of two 25 basis points rate hikes in 2024 instead of the previously projected three, adds to market anticipation ahead of the FOMC meeting. Attention will be on the updated economic projections, particularly the “dot plot,” for insights into the future rate trajectory.
Despite supportive factors for the USD from hawkish Fed expectations and elevated US Treasury bond yields, intervention concerns may limit JPY losses and restrict upside potential for the currency pair.
Technical analysis suggests a bullish outlook for the USD/JPY pair, with a solid bounce from the 200-day Simple Moving Average (SMA) signaling potential further appreciation towards the 152.00 level, or even surpassing the multi-decade high set in October 2022. Conversely, corrective declines are likely to find support near the 150.80 level, with a break below shifting bias towards bearish sentiment and targeting the 150.00 psychological level, followed by support near 149.50.
