Japanese Yen Technical Outlook: USD/JPY, EUR/JPY & GBP/JPY

FX intervention chatter returns, but is it enough for the ailing JPY?
USD/JPY at psychological 160.00 handle.
EUR/JPY prints morningstar candlestick pattern, hinting at the potential for further upside.

Fundamental Overview

The Japanese Yen continues to tread water against its G 7 peers as its monetary policy stance continues to be scrutinized. Many analysts, myself included, had hoped for a bold approach from Bank of Japan (BoJ) Governor Ueda at the June meeting of the BoJ.

The Governor however opted to remain cautious given the existential risks which have become a hot topic for central banks globally. Following a swathe of Central Bank meetings in June, the one commonality seems to be the uncertainty from the global geopolitical sphere, which many central banks see as the main risk for the second half of 2024.

Since the BoJ meeting in June, the Japanese Yen has come under renewed selling pressure. FX intervention has been used in the past by the central bank, but this doesn’t seem to have a lasting impact anymore.

Comments from policymakers and Japanese officials have had a similarly lackluster impact of late. Thus the comments this morning from top FX diplomat Masato Kanda is unlikely to rescue the ailing JPY. Mr Kanda stated authorities are prepared to step in to support the Japanese yen 24 hours a day, if necessary, the Yen was trading below 160 per US dollar and remains there for now. This was followed by comments this morning from Moody’s Analyst Christian De Guzman, who stated that the BoJ is likely to take time raising interest rates. Another hint that market participants may be in for a bumpy ride when it comes to the Japanese Yen in the coming months.

The Week Ahead: Japanese and US Inflation Data

Looking ahead to the rest of the week, there is a fair bit of data which could have an impact on Japanese Yen pairs. Most notably the US PCE data (Federal Reserve’s preferred inflation gauge) and of course the Japanese unemployment rate and Tokyo inflation numbers. ANy increase in the PCE number or a print above estimates could lead to US dollar strength as market participants may view it as a sign that rates may remain higher for longer.

The Japanese unemployment data may prove key as one of the sticking points for BoJ Governor Ueda has been improving wage growth. A rise in unemployment may signal that wage growth may remain stagnant while a drop in unemployment could be seen as signs of a tight labor market which usually results in upward pressure on wage growth.

Finally, geopolitics remains a significant focus, and this week could be pivotal for developments in the Middle East. Any increase in tensions between Israel and Hezbollah might drive investors toward safe-haven assets. Additionally, the week concludes with the first round of the French Parliamentary elections which could have a lasting impact on the Euro and by extension EUR/JPY moving forward.

Japanese Yen Technical Outlook

USD/JPY

Looking at USDJPY from a technical perspective, the weekly chart below shows a very bullish close last week with no wick to the upside. This is usually a sign of the momentum in play and this is also the first time the weekly candle has closed above 158.300 (the previous weekly candle high close).

USD/JPY Weekly Chart – June 24, 2024