- The Japanese Yen loses ground universally following the announcement of BoJ’s policy decision.
- The Yen experienced a brief surge, possibly indicating an effort by the Japanese authorities to intervene.
- The US PCE Price Index reveals inflation that surpasses expectations, yet it has minimal effect on the USD/JPY, which comes close to reaching 157.00.
The Japanese Yen (JPY) drops to a new low of 156.99 against the US dollar on Friday, following the Bank of Japan’s decision to maintain its policy settings and the release of US data indicating increasing inflation.
The Yen did not find any relief from the comments made by BoJ Governor Kazuo Ueda during the press conference that followed the meeting. Despite an apparent intervention effort on Friday morning, the JPY only experienced a brief recovery before a strong selling bias persisted. The BoJ’s rate outlook, indications of a slowdown in Japan’s inflation, and overall optimistic sentiment in the equity markets are significant factors eroding the strength of the safe-haven JPY.
In addition to this, the anticipation that the difference in interest rates between Japan and the United States (US) will continue to be significant for an extended period indicates that the JPY is likely to decline.
In the meantime, the US Dollar (USD) is drawing in new buyers and recovering some of the losses it experienced yesterday due to the weaker US GDP report, which caused it to reach a two-week low. This is happening because there is speculation that the Federal Reserve (Fed) will maintain higher interest rates for an extended period.
Following the release of US Core PCE Data, the USD/JPY Continues to Rise
The USD/JPY kept climbing following the publication of the March core Personal Consumption Expenditures Price Index (PCE), which is the US Federal Reserve’s favored measure of inflation.
The US Bureau of Economic Analysis (BEA) reported that the latest US Core PCE data revealed a YoY reading of 2.8%, surpassing analysts’ expectations of 2.6% and marking a slight increase from the previous reading of 2.8%. In the latest month, the core PCE increased by 0.3%, which was in line with expectations and remained unchanged from the previous period.
The data had a slight impact on the likelihood of the Federal Reserve reducing interest rates in September, with the probability increasing from 59% before the event to 60% afterward.
Additional information in the PCE report indicated that the headline Personal Consumption Expenditures Price Index increased to 2.7%, surpassing the estimated 2.6% and the previous reading of 2.5%. In the latest month, the PCE increased by 0.3%, which is in line with expectations and consistent with the last period.
Personal income increased by 0.5%, as predicted, while personal spending increased by 0.8%, surpassing expectations of 0.6% and remaining consistent with the previous 0.8%.
The Bulls’ Lack of Enthusiasm for the Boj’s Policy Outlook Has Contributed to the Japanese Yen’s Continued Decline
- According to the latest government data, consumer inflation in Tokyo experienced a significant slowdown in April. This, coupled with the Bank of Japan’s decision to keep things as they are, has a negative impact on the Japanese Yen.
- In April, the Tokyo Consumer Price Index (CPI) experienced a YoY increase of 1.8%. Similarly, the core CPI (excluding Fresh Food and Energy) also saw a YoY growth of 1.8% during the same period. However, these figures fell short of the consensus estimates.
- A key measure of consumer price inflation, which excludes volatile components such as food and energy prices, has dropped below the Bank of Japan’s target of 2% for the first time since September 2022.
- As expected, the Japanese central bank decided to keep its short-term interest rates steady at 0%- 0.10% and expressed its intention to maintain accommodative monetary conditions in the near future.
- Meanwhile, the BoJ has revised down its economic growth forecast for the current fiscal year 2024 to 0.8% from the previously estimated 1.2%. Additionally, the CPI excluding fresh food for FY 2024 is projected to be 2.8%, compared to the previous estimate of 2.4%.
- During the press conference following the meeting, BoJ Governor Kazuo Ueda mentioned that a long-lasting decline in the JPY is possible and that the attainment of the 2% inflation goal is very near.
- Based on data from the US Commerce Department, the global economy experienced a modest growth of 1.6% on an annualized basis during the first quarter of the year. This represents the lowest reading since the middle of 2022.
- There was a noticeable decrease in momentum at the beginning of 2024, but an increase in the underlying inflation balanced this out. This further solidified expectations that the Federal Reserve would maintain higher interest rates for an extended period.
USD/JPY Must Consolidate Before the Next Leg Up Due to Overbought RSI
From a technical standpoint, if the momentum continues beyond the 156.00 level, it could serve as a new catalyst for bullish traders and enhance the potential for further gains. However, considering the highly overbought Relative Strength Index (RSI) on the daily chart, it would be wise to wait for a period of consolidation or a slight decline before preparing for the next upward movement.
On the other hand, if the price moves downward below the 156.00 level, solid support is located in the vicinity of the 155.35-155.30 area. Next comes the psychological level of 155.00 and a resistance point within the short-term trading range, located around the 154.70 region. If the latter is breached, the USD/JPY pair could decline toward the 154.00 round figure before reaching last Friday’s swing low, which is located in the 153.60-153.55 zone.