The Japanese Yen (JPY) encounters renewed selling pressure following recent fluctuations attributed to potential government intervention, maintaining a subdued stance into the European session on Tuesday. The widening interest rate gap between Japan and the United States (US) coupled with easing geopolitical tensions in the Middle East contribute to the depreciation of the safe-haven JPY. Concurrently, a resurgence in US Dollar (USD) demand adds further momentum to the USD/JPY pair.
Traders exhibit caution, awaiting clearer signals regarding the Federal Reserve’s (Fed) monetary policy direction before committing to fresh positions. Attention remains focused on the upcoming two-day FOMC policy meeting announcement on Wednesday and the release of the pivotal US Nonfarm Payrolls (NFP) report scheduled for Friday. In the interim, Tuesday’s US economic calendar, featuring the Chicago PMI and the Conference Board’s Consumer Confidence Index, could provide incremental influence on the USD/JPY pair.
Japanese Yen’s Volatility Amidst BoJ’s Rate Outlook Uncertainty
The Japanese Yen experiences a notable intraday reversal after reaching a new 34-year low on Monday amidst speculation of Japanese authorities intervening to stabilize the currency. While Japan’s top currency diplomat refrains from confirming intervention, he acknowledges the speculative and rapid nature of recent currency market movements.
Despite the JPY’s brief recovery, persistent expectations of a substantial interest rate differential between Japan and the US persist, supported by the Bank of Japan‘s decision to maintain its key interest rate unchanged in April. The BoJ’s downward revision of its economic growth forecast for the current fiscal year, alongside sluggish inflation data, raises doubts regarding further policy tightening.
Conversely, the Federal Reserve’s inclination towards maintaining higher interest rates for an extended period reinforces market expectations. Additionally, US economic indicators, including the Personal Consumption Expenditures (PCE) Price Index, underscore persistent inflationary pressures.
USD/JPY Poised for Bullish Momentum
Technically, spot prices exhibit resilience below the 200-hour Simple Moving Average (SMA), with a subsequent move beyond the 38.2% Fibonacci retracement level indicating bullish sentiment. Positive traction observed in hourly oscillators corroborates the constructive outlook for the USD/JPY pair.
Expectations for a potential rally beyond the 157.00 mark towards the 50% Fibonacci retracement level near 157.40 are viable. Further upside momentum could propel prices towards the 158.00 level or the 61.8% Fibonacci retracement level, acting as a pivotal resistance point.
Conversely, downside movement below the 156.75-156.70 region may find support near the 156.35 level, followed by the 156.00 mark. A breach below the latter could expose the 200-hour SMA support near 155.35, with further declines targeting the psychological level of 155.00 and the overnight swing low around the mid-154.00s.
