Heading into the European session on Friday, the Japanese Yen (JPY) faces downward pressure, reaching a fresh multi-decade low against its American counterpart. The Bank of Japan (BoJ) recently adopted a dovish stance at the conclusion of its March meeting, refraining from providing clear guidance on future policy actions. In contrast, the Federal Reserve (Fed) is anticipated to delay interest rate cuts due to persistent inflationary pressures, contributing to a significant interest rate gap between the US and Japan. This, coupled with stable equity markets, continues to undermine the safe-haven appeal of the JPY.
The US Dollar (USD) extends its ascent to its highest level since November, buoyed by hotter-than-expected consumer inflation data, prompting investors to revise their expectations of the timing of the first Fed interest rate cut to September from June. Consequently, elevated US Treasury bond yields further bolster the USD, exerting additional upward pressure on the USD/JPY pair.
However, speculations regarding potential intervention by Japanese authorities to curb further JPY weakness serve as a cautionary note for near-term positioning.
In the latest developments, Richmond Fed President Thomas Barkin and New York Fed President John Williams offered hawkish sentiments regarding inflation and monetary policy, contributing to market sentiment favoring the USD.
Meanwhile, Japan’s Finance Minister Shunichi Suzuki reiterated vigilance over FX movements, emphasizing the potential adverse effects of a weak JPY on import prices and domestic consumers and firms.
The USD/JPY pair remains poised for robust weekly gains, marking its fifth consecutive week of appreciation, with market focus shifting to the release of the Preliminary Michigan Consumer Sentiment Index for potential trading cues.
From a technical standpoint, while the breakout above the 152.00 mark signals bullish momentum, caution is advised as the Relative Strength Index (RSI) approaches overbought levels. Immediate resistance lies near the 153.25-153.30 region, with a potential target of 154.00. Conversely, support is anticipated near the 152.00 mark, followed by 151.40 and 151.00 levels in case of a corrective decline. A sustained decline may indicate a reversal of the current bullish trend.
