Japanese yen is struggling to capitalize on Friday’s small intraday advances versus the US dollar.
Following an early increase versus the US Dollar (USD) on Friday. The Japanese Yen (JPY) loses traction due to a mix of factors. Policymakers at the Bank of Japan (BoJ) struck a relatively dovish tone this week. Saying it was premature to discuss exiting ultra-easy policy.
This, combined with the positive sentiment in US equity markets, undercuts the safe haven JPY. And pushes the USDJPY pair over the 148.00 level. As the European session begins, while weak US Dollar (USD) price action limits the advance.
USDJPY pair’s upside is limited by differing Fed-BoJ policy forecasts.
On Thursday, a pair of Fed officials resisted expectations for a swift shift to rate decreases. Leaving the door open to more policy tightening if inflation growth stalled. The markets, on the other hand, appear confident. That the US central bank has completed its policy tightening campaign and may begin reducing interest rates as early as March 2024. This, in turn, prevents USD bulls from placing new bets, acting as a headwind for the USDJPY pair. Ahead of Fed Chair Jerome Powell’s address later in the US session.
Traders are now looking for short-term momentum from the US ISM PMI ahead of Fed Chair Powell’s speech.
Aside from that, rising acceptance that a second consecutive year of large wage increases next year will provide. An opportunity for the BoJ to consider exiting a decade long monetary stimulus keeps spot prices under control. Furthermore, concerns about China’s deteriorating economic conditions justify caution for bulls. Nonetheless, the USDJPY pair is on course to close in the red for the third week in a row. As traders now look to the release of the US ISM Manufacturing PMI on the penultimate day of the week for short-term stimulus.
Daily Digest Market Movers: Japanese Yen relinquishes slight intraday gains vs USD, but lacks follow-through.
Bank of Japan board member Seiji Adachi said on Wednesday. That debating an exit from the eurozone was premature. Negative interest rates are necessary since the country has yet to establish a positive wage-inflation cycle.
Toyoaki Nakamura, a fellow board member, stated on Thursday that now is not the time to discuss changing policy and that the Bank of Japan must proceed with caution in phasing out its huge stimulus measures.
Meanwhile, investors believe that the significant wage rises seen this year — the greatest in over 30 years – will continue until 2024, allowing the Bank of Japan to shift away from its dovish posture.
Macroeconomic data issued earlier this Friday showed that Japan’s unemployment rate unexpectedly fell to 2.5% in October from 2.6% the previous month, although this has minimal impact on the Japanese Yen.
According to the final Japan au Jibun Bank Manufacturing PMI, Business activity dipped to 48.3 in November, the lowest level in nine months, from 48.7 the previous month.
On Thursday, the US Commerce Department reported that inflation, as measured by the Personal Consumption Expenditures (PCE) Price Index, was constant in October after falling by 0.4% in September.
The PCE Price Index decelerated from 3.4% to 3.0% in the year to October, the weakest year-on-year growth since March 2021.
The core PCE, which excludes volatile food and energy costs, grew by 0.2% in October and by 3.5% year on year, meeting expectations and pointing to signs of slowing inflation.
During the week, the number of Americans who applied for unemployment benefits increased by 7K to 218K. Continuing Claims reached a two-year high on November 25.
According to New York Fed Bank President John Williams, the central bank’s policy position is the most restrictive in 25 years, and it will most likely need to remain stringent for some time.
Fed President Mary Daly struck a similar tone.
San Francisco Fed President Mary Daly struck a similar tone, noting that her base case does not call for any additional rate hikes, though it is too early to tell if the Fed is done raising interest rates.
The USD, on the other hand, is struggling to attract any follow-through buying as market expectations rise that the Fed will begin to ease monetary policy as early as March 2024.
Market players are now anticipating Fed Chair Jerome Powell’s scheduled comments later this week. On the last day of the week, look for short-term trading chances during the US session.
