Japanese yen continues to attract buyers Despite geopolitical dangers and fears of intervention.

The Japanese yen (JPY) struggles to capitalise on Friday’s small Asian session.  Advances and remains close to a one week low against the US dollar (USD) set the day before.

Any major advances are capped by fading optimism for a rapid adjustment in the Bank of Japan’s policy stance.

A recession in Japan appears to have shattered hopes for a change in the Bank of Japan’s (BoJ) policy stance in the coming months. This, combined with a strong bullish mood in global equity markets. Acts as a headwind for the JPY is considered a safe haven. However, recent vocal intervention by Japanese officials. And geopolitical concerns may discourage traders from initiating strong negative wagers on the JPY.

The Fed’s higher-for-longer narrative is expected to strengthen the USD and the USDJPY.

Aside from that, the restrained price action of the US Dollar (USD) demands. Prudence before preparing for any major appreciation in the USDJPY pair. The minutes of the late January FOMC meeting revealed. That policymakers are in no hurry to lower interest rates despite persistent inflation and a healthy US economy. This continues to support elevated US Treasury bond yields and favours USD bulls. Implying that the current pair’s path of least resistance is to the upside. As a result, any significant corrective slide could be interpreted as a buying opportunity and is more likely to be restricted.

Daily Market Movers: The Japanese yen appears fragile despite diverging BoJ-Fed policy forecasts.

Despite US and UK strikes, attacks on commercial vessels in the Red Sea by Yemen’s Iran aligned Houthi rebels continue. Heightening the likelihood of future military action and boosting the safe-haven Japanese Yen.
Japan’s Ministry of Finance and the Bank of Japan have cautioned. That they are closely monitoring the exchange rate. And are prepared to act in the market to prevent further weakness in the domestic currency.
According to data released last week, Japan’s economy unexpectedly entered. A technical recession in the fourth quarter, fueling suspicion that the Bank of Japan’s intentions to exit the ultra-easy policy regime may be delayed.
On the other hand, the FOMC meeting minutes from Wednesday. Together with  statements from a plethora of influential Federal Reserve officials, the central bank reinforced its commitment to keeping interest rates higher for longer.
Fed Vice Chair Philip Jefferson said on Thursday that he is cautiously optimistic about inflation growth and that when assessing interest rate cut alternatives, he will consider all data points rather than just one.
Separately, Philadelphia Fed President Patrick Harker stated that the central bank is nearing the threshold of decreasing interest rates, though policymakers are unsure when that will happen.
Furthermore, Fed Governor Lisa Cook believes that the current monetary policy stance is restrictive and would prefer to be more confident that inflation is approaching 2% before initiating interest rate decreases.
Meanwhile, the Fed Governor Christopher Waller expects the FOMC to start decreasing interest rates this year. But he wants to see more evidence that inflation is slowing before he supports interest rate decreases.

CME FedWatch Tool, the current market price shows a 30% possibility that the Fed will begin decreasing interest rates.

According to the CME FedWatch Tool, the current market price shows a 30% possibility. That the Fed will begin decreasing interest rates in May, down from a more than 80% chance just a month ago.
Furthermore, new indicators of improvement in the US labor market continue to support elevated US Treasury bond yields. Which benefit US Dollar bulls and should strengthen the USD/JPY pair.
According to the US Department of Labor, the number of Americans applying for unemployment insurance benefits has fallen. 201K during the week ending February 17, compared to 213K the prior week.
The better than expected release of the flash PMI prints revealed that the decline in Eurozone business activity abated in February. Which further strengthened investors’ optimism and should contain gains for the Japanese yen.