Yen Conversion Pulls Back as Traders Await Fed Announcement

Anticipating Fed’s Announcement

The Yen conversion experienced a slight pullback during the early trading hours of Wednesday, creating an opportunity for value hunters to re-enter the market as anticipation builds for the upcoming Federal Reserve announcement.

Market Expectations and Profit-Taking

Currently, the general consensus among traders and analysts is that the US dollar is moving toward an upward trajectory. However, some level of profit-taking may occur in the face of the impending volatile event.

Support at ¥150 Level

From a technical perspective, the ¥150 level stands out as a formidable floor in the market, providing a solid foundation for the currency pair. Now that the price has ascended well above this threshold, it serves as an encouraging signal for investors looking to capitalize on the value presented by potential dips in the market.

Resistance at ¥152 Level

However, it is crucial to note that the ¥152 level above is perceived as a major resistance barrier. This level has historically acted as a ceiling, limiting the upward potential of the US dollar against the Japanese yen. The recent fluctuations in the market can be attributed to the Bank of Japan’s hesitation. It initially hinted at a potential softening of its yield curve control, only to fall short of providing a clear and definitive course of action. Tuesday’s candlestick was a clear reflection of the market’s response. Besides, traders swiftly punished the Japanese yen for the central bank’s indecision.

Factors Affecting the Currency Pair

It is no surprise that Japan’s colossal national debt leaves little room for the central bank to permit a rapid rise in interest rates. Therefore, a necessity for a continued commitment to quantitative easing occurs. On the other side of the equation, the Federal Reserve is expected to maintain a “tighter for longer” monetary policy stance. On its own, it would inevitably bolster the strength of the US dollar.

Technical Indicators and Support

Looking at the technical indicators, the 50-day Exponential Moving Average is currently situated near the ¥148 level. The market expects it to provide substantial support for the US dollar over the longer term. While a breakdown below the ¥147.80 level could potentially lead to a deeper correction, such a scenario appears highly unlikely unless Federal Reserve Chair Jerome Powell delivers an unexpected market shock. At this juncture, such an outcome is less likely to occur.

Investor Sentiment

In the end, the prevailing sentiment among market participants is to view dips in the US dollar as buying opportunities, given the broader context of a longer-term secular bull market. This perspective is expected to remain valid for several months, at the very least, as traders and investors align their strategies with the overarching trend and prepare for the next waves of market movement.

Yen to Dollars Corrects Further from YTD Top, Slides to 150.00 

Factors Impacting USD/JPY

The USD/JPY pair extends the overnight retracement slide from the 151.70 area, or its highest level since October 2022 and drifts lower for the second successive day on Thursday. Spot prices currently trade just above the 150.00 psychological mark, down over 0.50% for the day, though any meaningful corrective decline still seems elusive.

US Dollar Weakening: Is It a Good Time to Buy Japanese Yen?

Expectations that the Federal Reserve (Fed) is nearing the end. Its policy-tightening campaign dragged the US Dollar (USD) away from a near one-month peak touched on Wednesday. In turn, it is quite literally exerting pressure on the USD/JPY pair. The US central bank left the key overnight interest rates unchanged for the second time in a row. However, it left the door open for additional rate hikes in the wake of the unexpected US economic resilience. However, Fed Chair Jerome Powell, in the post-meeting press conference, expressed his polar opinion. He noted that the recent market-driven surge in borrowing costs could have an impact on economic activity.

Factors Contributing to JPY’s Weakness

Speculations that Japanese authorities will intervene in the FX market to combat a sustained depreciation in the domestic currency also contribute to the offered tone surrounding the USD/JPY pair. However, the Bank of Japan‘s (BoJ) dovish stance could help limit losses. The BoJ’s minor change to its yield curve control (YCC) policy. The policy attempts to slow down a move towards ending years of massive stimulus. This marks a big divergence in comparison to a relatively hawkish Fed. Along with the unattractiveness of Japanese government bonds, it could undermine the Japanese Yen (JPY).

Upcoming Economic Indicators

Market participants now look to the US economic docket – featuring the release of the usual Weekly Initial Jobless Claims and Factory Orders data later during the early North American session. Apart from this, the US bond yields will influence the USD price dynamics and provide some impetus to the Yen conversion. Traders will further take cues from the broader risk sentiment to grab short-term opportunities ahead of the closely-watched US monthly employment details – popularly known as the NFP report on Friday.

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