The Japanese Yen (JPY) is range-bound against its US counterpart during the early European session on Tuesday and remains close to a multi-month low touched last week. Investors appear skeptical about the Bank of Japan’s plan to raise interest rates further. Moreover, a hawkish shift by the Federal Reserve is dampening hopes of narrowing the interest rate differential between the US and Japan and continues to undermine the low-yielding Japanese Yen.
Apart from this, the generally positive risk tone is proving to be another factor acting as a headwind for the safe-haven Japanese Yen. However, recent strong inflation data from Japan keeps the door open for a potential rate hike by the Bank of Japan in January or March. Apart from this, geopolitical risks, trade war concerns and speculation that Japanese authorities may intervene to support the local currency are preventing yen bulls from placing aggressive bets.
From a technical perspective, the multi-month high, around the 158.00 area touched last Friday, could act as an immediate hurdle. Sustained strength beyond the mentioned handle would be seen as a fresh catalyst for bulls and lift USD/JPY to the 158.45 intermediate resistance en route to the 159.00 mark amid positive oscillators on the daily chart.
On the other hand, weakness below the 157.00 round figure now seems to find decent support near the 156.65 horizontal area, below which USD/JPY could slide to the 156.00 mark. Any further decline could be seen as a buying opportunity near the 155.50 area and seems limited near the 155.00 psychological mark. The latter should act as a strong base for spot market prices.
GBP/JPY faces mixed pressures
The GBP/JPY pair is struggling to establish a consistent direction on the day and is oscillating in a tight trading range, below the 197.00 level during the first half of the European session on Tuesday. Furthermore, the mixed fundamental backdrop warrants caution before determining the near-term path amid a mixed fundamental backdrop and thin trading volumes on Christmas Eve.
The Japanese Yen (JPY) continues to perform relatively poorly in the wake of uncertainty over when the Bank of Japan will raise interest rates again. In fact, the BoJ provided little evidence about how quickly it will raise borrowing costs at the end of its December policy meeting. Furthermore, BoJ Governor Kazuo Ueda last week opened up the possibility of waiting longer for the next rate hike and said that the central bank would need more information on wage trends. This, coupled with a generally positive risk tone, continues to undermine the Japanese Yen (JPY) and acts as a tailwind for the GBP/JPY pair.
Meanwhile, data released last Friday showed that core inflation in Japan accelerated in November, leaving the door open for a potential interest rate hike by the Bank of Japan in January or March.
Moreover, speculation that Japanese authorities may intervene to support the local currency is preventing traders from placing aggressive bearish bets on the yen. Apart from this, ongoing geopolitical risks and trade war concerns are supporting the Japanese yen as a safe haven.
On the other hand, the British pound (GBP) is undermining the Bank of England’s (BoE) split vote to leave interest rates unchanged last week and dovish expectations. It is worth noting that three members of the BoE’s Monetary Policy Committee voted in favor of a rate cut. Moreover, policymakers lowered their economic forecasts for the fourth quarter of 2024.
Japan warns of weak yen, speculators
Japan warns of speculative yen moves as the currency continues to show weakness ahead of two potential central bank events that could impact the market this week.
“I am very concerned about recent currency moves, including those driven by speculators,” Japanese Finance Minister Katsunobu Kato told reporters, reiterating his warnings from last week.
“The government will take appropriate measures against excessive moves in the foreign exchange market,” Kato added in a standard hint at possible intervention.
The yen rose against the dollar following his comments, briefly touching 157.06, after reaching 157.39 before the finance minister spoke.
With Governor Kazuo Ueda set to speak on Wednesday and the central bank releasing more details on last week’s meeting on Friday, the scope for further yen declines remains a risk for Japanese monetary authorities.
Analysts say low liquidity in the holiday market increases the likelihood of sharp moves, but that could make any intervention more effective.
“In terms of whether there is an actual intervention, the sense of nervousness is likely to increase as the yen approaches 160,” said Takeshi Ishida, currency strategist at Kansai Mirai Bank. “If they intervene in an environment of low liquidity, the move to strengthen the yen could be even bigger.”
Finance Minister Kato’s comments come amid renewed pressure on the yen since last week, largely driven by the view that the gap between U.S. and Japanese interest rates will take longer to narrow.
Some hedge funds are betting on the currency reaching the 160-165 range, according to Mukund Dhaga, head of Asia FX options at Barclays PLC based in Singapore.
The yen slipped sharply last week following the BOJ’s hold and Ueda’s comments suggesting a later-than-expected rate hike in March or later.
