On Monday, the USD/JPY pair sank. It had been rejected just below the 150.00 level during the Asian session. This movement follows dovish comments from Japanese Finance Minister Kato and Bank of Japan (BoJ) policymaker Uchida. Indeed, recent data releases have played an important role in shaping market sentiment. The BoJ continues to monitor the changing domestic and international economic and financial markets closely. Meanwhile, Tokyo and Australian inflation figures are due this week. Three reasons why the recent recovery of the US Dollar, which traded at a multi-month low, has been more limited. Consequently, such a move could limit the upside potential for the USD/JPY cross.
For the bullish investors to gain short-term control, they need to force the USD/JPY to sustain a move over the 200-period Simple Moving Average (SMA) on the 4-hour chart. This average is perched above the dangerous psychological level of 150.00. At the same time, completely different policy expectations going forward between the BoJ and the Federal Reserve (Fed) still have the pair on a bearish trajectory.
Economic Indicators Weigh on Yen
The Japanese Yen (JPY) has been selling off versus its US counterpart USDJPY for three days in a row. The negative sentiment persisted into Monday, amplified by a disappointing flash March PMI, which was the last straw for some traders. The PMI is a key monthly indicator, published by Jibun Bank and S&P Global. It’s a key measure of business activity in Japan’s manufacturing sector. A neutral reading of 50.0 indicates no change from the month before. Yet with any reading underneath 50 indicating a contractionary level of activity amongst goods producers, that would typically herald bearish developments for the JPY.
March’s PMI was bad news for the manufacturing sector, as the index dropped below the neutral 50.0 mark into contraction territory. This contraction represents another step back in the appreciably slowing pace of growth for Japanese producers, which puts additional weight on the JPY. News from Japan’s service sector, once the pride and hope of the economy, has shrunk for the first time in five months. This recent decline is adding further pressure on the already negative economic sentiment.
Technical Analysis and Market Reactions
The USD/JPY pair will have significant resistance at the 150.00 level. This resistance coincides beautifully with the 200-period SMA on the 4-hour chart. If bulls want to retake short-term control, they will need to see a clear breakout above this important level. More follow-through selling will push prices lower. On the downside, we would look for initial targets just under the 147.30 level and later at the 147.00 figure and the 146.55-146.50 range, not traded since early October.
As uncertainty abounds, market participants are understandably focused on shifts in monetary policy stances though. BoJ Governor Kazuo Ueda recently stated that the central bank aims to implement policies before it becomes too late, indicating a proactive approach amidst evolving economic conditions. This statement, together with increasing disparity in BoJ and Fed policy direction, may limit upside potential for USD/JPY from here.
Broader Economic Context
Tokyo and Australian inflation figures are on investors’ radars this week. These figures will offer additional clues to the state of the economy regionally and may play a key role in moving the markets. How inflation data continues to mix with pronounced monetary policies will clearly be key in determining currency dynamics going forward.
Compared to other global markets, gold prices are lower at the start of business early Monday after Friday’s price correction from its recent all-time high $3,058. The geopolitically sensitive price action of the precious metal tends to echo market risk sentiment and indirectly affect currencies pairs such as USD/JPY.