Japanese Yen stays firm as intervention warning looms, Dollar weakens

The Japanese yen plunges to its lowest level against the dollar since the 1990s as the Bank of Japan maintains a dovish stance on interest rates amid a strong greenback in global markets. Last week, the Bank of Japan raised interest rates for the first time in 17 years, exacerbating the yen's downward trend, hitting its lowest levels in approximately 34 years. Japanese authorities intervened in October 2022 to purchase the currency when it weakened to 151.94 yen per dollar.

The yen faces pressure from the strengthening dollar, fueled by expectations of sustained higher rates in the US compared to other major economies. USDJPY reaches a high of 151.97, not seen since the mid-1990s. Meanwhile, the dollar index, which gauges the greenback against a basket of currencies, hovers above the 104 mark, awaiting key US inflation data that could impact the Federal Reserve monetary policy outlook.

Investors are closely watching the upcoming US Personal Consumption Expenditures (PCE) price index report, the Fed's preferred inflation gauge, scheduled for release on Friday. On the NSE, JPYINR futures are trading lower by 0.21% at 55.34, reflecting the yen's continued weakness against the Indian rupee.

Japan Eyes Yen Stability Measures

Japan's Finance Minister, Shunichi Suzuki, hinted at potential measures to stabilize the yen, citing concerns over excessive volatility. He emphasized that such volatility poses uncertainties for trading partners and adverse conditions for businesses.

Monetary policy official Masato Kanda echoed similar sentiments, attributing the yen's current weakness to speculative forces rather than fundamental factors. Kanda emphasized the importance of closely monitoring currency movements and maintaining vigilance over market conditions. While Japan stands prepared to address yen volatility, specific decisions are pending.

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The yen's recent decline accelerated following the Bank of Japan's decision to raise interest rates, marking the end of an era of negative interest rates spanning eight years. This move was widely anticipated, given the meticulous groundwork laid by the BoJ.

Despite this shift, the Bank of Japan remains committed to an accommodative monetary policy stance, which continues to exert downward pressure on the yen's value.

USD/JPY Undergoes Technical Analysis

In the H4 chart of USD/JPY, a recent upward movement has reached 151.85, fulfilling a local target. Presently, the market is consolidating below this level. A potential downward breakout from this consolidation phase could prompt a correction towards 149.12, followed by a projected upward movement to 152.70. This analysis is supported by the MACD oscillator, which exhibits a downward trajectory towards the zero line.

Shifting focus to the H1 chart of USD/JPY, a narrow consolidation range has formed around 151.31. An anticipated downward graph from this consolidation phase could lead to a continuation of the correction towards 150.75. Should this level be breached, it could pave the way for further declines towards 149.20 before potentially rallying back to 151.85. The Stochastic oscillator corroborates this scenario, with its signal line currently positioned below 80 and poised for a descent towards 20.

Inflation Data Boosts Dollar

U.S. Core Inflation Data Looms Large; Dollar Gains on Durable Goods Orders, Pressuring Yen

Market attention centers on upcoming U.S. core inflation figures this week, with Wednesday's robust U.S. durable goods orders fueling dollar strength and weighing on the yen.

Guy Miller, Chief Market Strategist at Zurich Insurance Group, notes the struggle of currencies against a resilient U.S. dollar, evidenced by the yuan's weakest close since November 2023 at 7.2284.

The euro remains largely unaffected by Spanish inflation data, holding steady at $1.0835, while sterling maintains stability at $1.2633.

Miller underscores the outperformance of the U.S. economy compared to global counterparts, prompting investors to unwind short positions on the dollar, bolstering its recent gains.

Elsewhere, the dollar edges up against Sweden's crown following hints of potential rate cuts by the Swedish central bank, only to retreat and hold flat at 10.59 crowns.

The Swiss franc hovers near its lowest levels since November at 0.9039 francs to the dollar, reflecting the aftermath of Switzerland's surprise rate cut last week, with a year-to-date decline of around 7%.