Japanese yen is seeing some haven flows amid geopolitical tensions and worries of intervention.
The Japanese yen (JPY) edged higher versus the US dollar during the Asian session on Monday. But it remains well within striking distance of a multi-month low reached last week. Investors are concerned about geopolitical threats posed by Middle Eastern conflicts. And the ongoing confrontation between Russia and Ukraine. This, combined with suspicion that Japanese officials will interfere in the market to support the native currency, lends some Support for the safe-haven JPY.
Reduced expectations for an immediate adjustment in the BoJ’s monetary stance may limit further gains for the JPY.
However, concerns that the Bank of Japan (BoJ) may postpone its intentions to end ultra loose policies. In the wake of a technical recession in Japan are discouraging traders from placing big bullish bets on the JPY.
Hawkish Fed predictions support the dollar and should help limit USDJPY losses.
The US Dollar (USD), on the other hand, manages to stay above a multi-week low hit last Thursday. Amid speculation that the Federal Reserve (Fed) may begin decreasing interest rates later than planned. In fact, investors have pushed out expectations for the first Fed rate drop until June. Furthermore, markets have returned to the Fed’s forecast of three 25 basis point cuts this year. Which remains supportive of elevated US Treasury bond yields. This underpins the greenback. It helps to limit the downside for the Japanese yen pair. Traders are now looking forward to this week’s major US macro data. Which includes the Prelim Q4 GDP print and the Core PCE Price Index, for any real momentum.
Daily Market Movers: Japanese Yen bulls appear uncommitted amid BoJ policy uncertainty.
Despite the uncertainties around a truce, Israel has indicated its determination to intensify its operations to destroy Hamas, while Russia is planning a fresh onslaught against Ukraine that will begin in late May or early July.
This, combined with recent warnings from Japanese authorities that the government will interfere in the markets to prevent further deterioration in the domestic currency, provides support for the Japanese yen.
According to data revealed earlier this month, the Japanese economy has entered a technical recession, and dashes hopes that the Bank of Japan may abandon its ultra-easy monetary regime, restricting the JPY.
The FOMC meeting minutes released last week, as well as remarks by Fed members, indicated that the central bank is not in a hurry to decrease interest rates as it seeks to raise inflation to the 2% target.
Expectations that the Fed would keep interest rates higher for longer periods of time continue to support increased US Treasury bond yields and help the US Dollar hold steadily above a three-week low seen last Thursday.
This, together with the underlying positive attitude in global equities markets, undermines the safe-haven JPY and serves as a significant tailwind for the Japanese yen pair.
Investors now await this week’s crucial. Before settling on a definite near-term strategy, look to US macro data, notably the Core PCE Price Index, for new signals regarding the Fed’s future policy decisions.
