The Japanese Yen (JPY) has continued to show strength for the third consecutive day, reaching a three-week high as it marks the fourth day of a negative trend in the past five days. Speculations of government intervention by Japan’s financial authorities on Thursday, with intentions to support the country’s domestic currency, have contributed to this rise. In addition, the USD selling bias post-FOMC has added pressure on the USD/JPY pair.
Investors are closely monitoring the interest rate differential between Japan and the United States, which is expected to remain wide for the foreseeable future. Along with positive trends in equity markets, this has created a headwind for the safe-haven JPY, limiting the downside for the USD/JPY pair. Traders are also awaiting the release of the US monthly jobs data, known as the Nonfarm Payrolls (NFP) report, to gain further direction.
Recent data from the Bank of Japan suggests substantial spending to boost the domestic currency, supporting the JPY’s upward trajectory. However, Japan’s currency diplomat has not confirmed intervention directly, leaving some ambiguity. On the other hand, the Federal Reserve has ruled out further interest rate hikes despite sticky inflation, affecting the performance of the US Dollar and the USD/JPY pair.
The Bank of Japan’s commitment to maintaining accommodative financial conditions contrasts with the Federal Reserve’s stance, causing a widening policy divergence. This divergence is reflected in the differential between US and Japanese bond yields, favoring the US Dollar against the Japanese Yen. The Yen, known as a safe-haven investment, tends to strengthen during times of market stress due to its perceived reliability.
From a technical perspective, a break below the 50% Fibonacci retracement level of the March-April rally could lead to further losses in the USD/JPY pair. Negative traction on daily chart oscillators indicates a potential drop towards the 152.00 confluence level. On the other hand, a recovery above 153.00 might face resistance near 153.50 and 153.75, with the possibility of a rally towards 155.00 if the 154.00 round figure is surpassed decisively.
The Japanese Yen’s recent strength is attributed to speculated government intervention and the post-FOMC USD selling bias. Investors are closely watching the interest rate differential and waiting for the NFP report for further cues. The policy divergence between the Bank of Japan and the Federal Reserve is a key factor impacting the USD/JPY pair. Additionally, the Yen’s safe-haven status plays a role in its value during market turbulence.