Currency traders are warning that the Japanese government may need to repeatedly act to support the beleaguered yen as economic forces are likely to continue to weigh on its value.
- According to FX platforms, the yen jumped sharply on Monday during Asian trading hours when Japanese markets were closed for a holiday.
- Obviously, the move sparked speculation that the patience of Japanese officials had worn thin with its decline, and they had acted on their threats to support it.
- Recently, the currency had fallen about 10% this year against the dollar, the most among its G10 peers, and hit a 34-year low of 160.22 against the dollar before the surprise surge on Monday.
- Quickly, it retreated to the 154.53 support level before settling around 156.20 at the time of writing.
Overall, the problem facing Prime Minister Fumio Kishida's government, as traders and analysts say, is that any intervention may need to be sustained. Especially, this is the case as markets brace for the US Federal Reserve to reaffirm this week that it intends to keep interest rates high for longer, boosting the appeal of the dollar. Commenting on the performance of the FX market, Yusuke Miura, a foreign exchange strategist at Nomura International Plc, said, "A return to the 160 level is largely on the horizon unless the macroeconomic situation changes." Also, he added that Monday's yen trading suggests that "the market is not very afraid of fighting the Ministry of Finance on the currency," referring to Japan's Ministry of Finance, which oversees the country's currency policy.
Meanwhile, analysts at Citigroup expect the yen to move against the dollar in a range of 155 to 160 per dollar, as decision makers at the US Federal Reserve meet on Tuesday and Wednesday and investors look to some key economic data to gauge whether the US economy is declining.
Furthermore, the yen was trading at around 156 yen to the dollar as of 4 p.m. ET, roughly the middle of the US session. briefly, the currency rallied after midday in New York, sparking speculation about whether Japan had intervened during US trading hours. Clearly, the rise was smaller than that seen in the Asian time zone and some strategists attributed it to jittery markets following the overnight talk of intervention.
USD/JPY Technical analysis and Expectations Today:
The Japanese yen is heading for its fourth consecutive monthly decline. Traders saw a new reason to sell after the Bank of Japan last week kept its key interest rate range between 0% and 0.1%, as expected, and refrained from signalling a reduction in its bond purchases. Meanwhile, in the United States, the Federal Reserve is expected to keep interest rates about five basis points higher than this level until the fourth quarter. Therefore, the overall uptrend for the USD/JPY pair may persist for some time. Obviously, this is because the yen's price has closely followed the interest rate differential between the United States and Japan particularly closely this year.
Therefore, "any impact from such targeted intervention will be very short-term." And "if the Bank of Japan and the Ministry of Finance want to prevent further declines, they will have to change their guidance to reflect a decrease in bond purchases and/or an increase in the interest rate path." Their task may become more challenging in the coming days, given the US economic backdrop. In Bloomberg Economics analysis, there is a risk of more hawkish signals from the Federal Reserve as early as this week.
Also, the economic data this week will be crucial. The focus will be on US jobs numbers for April due on Friday. Clearly, the evidence of weakness may revive expectations that the US Federal Reserve will ease policy earlier than markets currently expect. Initially, the report is expected to show job growth slowing this month, while remaining at a strong level.
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