Yen Sees Brief Rebound, But Lackluster Momentum Ahead of US Interest Rate Clues
Yen Bounces Back, But Momentum Fades
The Japanese Yen (JPY) managed a brief rebound Wednesday, recovering from a one-week low against the US Dollar (USD). However, the rally lacked sustained strength, leaving investors cautious as they await crucial insights from the upcoming Federal Open Market Committee (FOMC) minutes.
BoJ Rate Hikes Fuel Yen Support
The Yen drew support from expectations that the Bank of Japan (BoJ) will continue raising interest rates to combat rising inflation. Japan’s Finance Minister Shunichi Kato recently expressed concern over surging bond yields and vowed to closely monitor the bond market situation. This came after reports suggested the Ministry of Finance might reduce super-long bond issuance, signaling a potential shift in monetary policy.
Divergent Monetary Policies Fuel Uncertainty
However, a generally positive risk appetite in the market, driven by global trade optimism and upbeat US economic data, tempered JPY gains. The diverging monetary policies of the BoJ and the Federal Reserve (Fed) also contributed to the uncertainty. While the BoJ appears poised for further rate hikes, traders anticipate at least two 25 basis point rate cuts by the Fed in 2025.
Geopolitical Risks Remain Elevated
The ongoing war in Ukraine and the standoff in Gaza further complicated the market outlook, keeping geopolitical risks high. Russia’s refusal to engage in ceasefire talks and its gains in Ukraine, coupled with Hamas’s rejection of a US ceasefire proposal for Gaza, added to the global uncertainty.
Key Economic Data on Deck
Investors now await the release of the FOMC minutes for clues about the Fed’s future rate-cut path. This will be a crucial piece of information for the USD/JPY pair. Upcoming economic data releases, including the Prelim US Q1 GDP, Tokyo CPI, and the US Personal Consumption Expenditure (PCE) Price Index, will also shape market sentiment.
Technical Outlook: Limited Upside Potential
Technically, the USD/JPY pair failed to capitalize on its recent recovery beyond the 38.2% Fibonacci retracement level. While positive oscillators on the 4-hour chart suggest further intraday gains, the daily chart indicators remain unconvinced, signaling potential resistance near the 145.00 psychological mark. A break below the 143.75-143.65 support level could trigger a reversal, sending the pair back towards the 143.00 level.
