Title: Japanese Yen Extends Recovery Against US Dollar Despite Ongoing Negative Pressures
Original Source: economies.com
Original Author: Written by Economies.com Staff
The Japanese yen continued to strengthen against the US dollar on Friday, moving further away from multi-decade lows despite several fundamental and technical factors exerting downward pressure on the currency. The recovery comes amid speculation about possible intervention by the Bank of Japan (BoJ), slower gains in US Treasury yields, and cautious sentiment among foreign exchange traders awaiting more guidance on the policy outlook from both Japanese and US central banks.
This article provides an in-depth look into the recent performance of the USD/JPY currency pair, the key drivers influencing the market, and the broader macroeconomic context that is contributing to the yen’s current trajectory.
Highlights of the Week:
– USD/JPY fell from its recent 34-year high of 160.20 as traders speculated that Japanese authorities might intervene to stabilize the currency.
– The pair reached a session low near 156.65, marking a strong rebound for the yen.
– Reduced upward momentum in US Treasury yields has taken some pressure off the Japanese currency.
– Market participants remain acutely aware of potential signals from the Bank of Japan regarding future monetary policy changes and exchange rate management.
Market Performance Overview:
On Friday, April 26, 2024, USD/JPY opened trading sessions with a continuation of the downward trend that began earlier in the week. Prices dropped by approximately 0.5 percent, bringing the exchange rate down from nearly 158.50 to under 157.00. This downward movement consolidates the significant recovery the yen has posted after falling to its weakest level since 1990 earlier this month.
Despite the recovery, the yen remains under pressure from a macroeconomic perspective. The Bank of Japan’s ultra-loose monetary policy continues to serve as a major headwind. Through aggressive yield curve control measures, the BoJ has kept interest rates low and constrained bond yields, widening the gap with US interest rates and reducing the appeal of holding yen-denominated assets.
Factors Supporting Yen Recovery:
While fundamental conditions still weigh on the yen, several near-term factors have helped trigger the current recovery:
1. **Speculation on Japanese Policymaker Intervention**
– Traders began to price in the possibility of Japanese government or central bank intervention to support the yen.
– Past verbal warnings from Japan’s Ministry of Finance and the BoJ have heightened alertness in the market.
– The threat of direct market intervention acts as a psychological deterrent against further speculative selling.
2. **Slowing US Treasury Yield Momentum**
– US Treasury yields, particularly the 10-year yield, retreated slightly after a sharp rise during the first quarter.
– Lower yields reduce the rate differential that favors the dollar over the yen.
– Diminishing confidence in an aggressive US Federal Reserve rate hike path has further tempered dollar strength.
3. **Risk-Off Sentiment and Global Uncertainty**
– Broader geopolitical concerns and equity market volatility have triggered some safe-haven demand.
– While the yen has lost some of its traditional safe-haven appeal due to policy divergence, it still retains partial defensive characteristics in times of global stress.
4. **Technical Adjustments in the Currency Market**
– USD/JPY had reached technically overbought territory, leading traders to take profits on long positions.
– Chart indicators suggested a correction was due, and various technical resistance levels played a role in reversing bullish momentum.
Underlying Pressures on the Yen:
Despite the recent upswing, the Japanese yen remains under substantial fundamental pressure stemming from both domestic and international factors.
1. **BoJ’s Dovish Monetary Stance**
– Japanese interest rates continue to remain near zero, as the Bank of Japan adheres to a cautious path regarding policy normalization.
– Even after recent adjustments to yield curve control measures, the BoJ has not committed to significant rate
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