The Japanese Yen (JPY) plummeted to a fresh multi-decade low of 156.99 against its American counterpart, following the Bank of Japan‘s (BoJ) decision to maintain its policy settings unchanged amidst rising inflation in the US.
Despite attempts to provide reassurance during the post-meeting press conference, BoJ Governor Kazuo Ueda’s remarks failed to alleviate pressure on the Yen. A brief recovery in the JPY on Friday morning was short-lived, as a prevailing sentiment of heavy selling persisted. The BoJ’s ambiguous rate outlook, coupled with signs of cooling inflation in Japan and a positive sentiment surrounding equity markets, contributed to undermining the safe-haven appeal of the JPY.
Furthermore, expectations of a prolonged wide interest rate differential between Japan and the United States suggest a downward trajectory for the JPY. Meanwhile, the US Dollar (USD) witnessed fresh buying interest, reversing previous declines amidst expectations that the Federal Reserve (Fed) will maintain higher interest rates for an extended period.
The USD/JPY pair continued its ascent following the release of March core Personal Consumption Expenditures Price Index (PCE), which exceeded expectations. The higher-than-expected reading of 2.8% year-on-year signaled rising inflationary pressures in the US, reinforcing expectations of a sustained rate hike trajectory by the Fed.
In addition to the core PCE data, other indicators in the PCE report demonstrated robustness in the US economy, with Personal Income and Personal Spending surpassing estimates.
The weakening of the Japanese Yen was further compounded by government data revealing a sharp deceleration in consumer inflation in Tokyo during April, coupled with the BoJ’s decision to maintain its accommodative monetary stance.
BoJ Governor Kazuo Ueda acknowledged the possibility of prolonged weakness in the JPY and emphasized the proximity to achieving the 2% inflation target.
Amidst these developments, signs of intervention attempts to support the Yen proved ineffective, with the USD/JPY pair returning to session highs. From a technical standpoint, the USD/JPY pair’s momentum suggests potential for further gains, although an overbought Relative Strength Index (RSI) on the daily chart indicates a need for near-term consolidation or a modest pullback before the next bullish move.
Support for the USD/JPY pair is anticipated around the 155.35-155.30 region, with further downside potential towards the 155.00 psychological mark and short-term trading range resistance breakpoints. Conversely, a breach of resistance beyond the 156.00 level could fuel additional bullish momentum.
