The Japanese Yen (JPY) encountered substantial selling pressure during the European session on Thursday, relinquishing a significant portion of its intraday gains. This move comes in the backdrop of the currency hovering near the year-to-date low against the US Dollar (USD), a trend observed in the preceding day. The Bank of Japan (BoJ), earlier in the week, hinted at maintaining accommodative financial conditions without providing explicit guidance on future policy steps or the pace of policy normalization. Coupled with the prevailing risk-on sentiment, this prompted renewed selling pressure around the safe-haven JPY.
Meanwhile, the USD remained near a one-week low following the Federal Reserve’s (Fed) forecast of three interest rate cuts by year-end. Despite this, a slight uptick in US Treasury bond yields provided some support to the USD, leading the USD/JPY pair to rebound approximately 70-75 pips from its daily low near the 150.25 region. However, speculations about potential interventions by Japanese authorities to curb further JPY weakness may deter aggressive directional bets and limit the upside for the currency pair.
Recent developments in Japan’s economic landscape have also influenced market dynamics. A Bank of Japan source indicated the possibility of another rate hike before the year-end, bolstering the Japanese Yen. Additionally, the monthly Reuters Tankan survey revealed improved confidence among major Japanese companies, with both manufacturing and service sector sentiment showing positive trends. Moreover, Japan’s exports exceeded expectations in February, leading to a decrease in the trade deficit. The au Jibun Bank Japan Manufacturing and Services PMI also indicated signs of recovery in factory activity and continued expansion in the service sector.
In response to these economic indicators, Japan’s Finance Minister emphasized the importance of stable currency movements, particularly against the backdrop of recent monetary policy adjustments by the BoJ. BoJ Governor Kazuo Ueda reaffirmed the central bank‘s commitment to supporting the economy and maintaining accommodative monetary conditions, albeit acknowledging the side-effects of prolonged unconventional easing measures.
From a technical standpoint, the USD/JPY pair remains below its year-to-date peak set on Wednesday, with the 150.00 level serving as a crucial support level for bullish momentum. Intraday declines below this level may target the psychological mark of 150.00 and further towards the 38.2% Fibonacci retracement level around 149.75. Conversely, a breach above the 150.90-151.00 zone could signal a resurgence of bullish sentiment, potentially challenging the multi-decade high around the 152.00 mark observed in November 2023.
