Japan’s Manufacturing PMI climbed to 50.5 in May from April’s 49.6, suggesting the first expansion since May 2023.
The US Dollar gained ground after the FOMC Minutes cast doubt on the Fed’s willingness to proceed with rate cuts.
The Japanese Yen (JPY) remains flat despite the Bank of Japan (BoJ) announcing on Thursday that it left the Japanese government bonds (JGB) amounts unchanged compared to the previous operation. Over a month ago, the BoJ trimmed the amount of 5-10 years it bought in a scheduled operation.
The JPY avoided to cheer the Purchasing Managers Index (PMI) data from Japan that showed that private sector growth hit a nine-month high in May as manufacturing activity returned to expansion.
The US Dollar (USD) remains slightly tepid ahead of the US PMI data due on Thursday. However, the Greenback gained ground on Wednesday, with the release of minutes from the latest Federal Open Market Committee (FOMC) policy meeting on Wednesday.
Federal Reserve (Fed) policymakers have voiced worries regarding the slow progress on inflation, which has demonstrated greater persistence than initially anticipated at the beginning of 2024. Consequently, the Fed is cautious about moving forward with interest rate cuts.
Tensions are escalating following Lai Ching-te’s assumption of office as Taiwan’s new president. Chinese state media reports indicate that China has deployed numerous fighter jets and conducted simulated strikes in specific areas in the region, including actions from naval vessels.
Japan’s Manufacturing Purchasing Managers Index (PMI), released monthly by Jibun Bank and S&P Global, rose to 50.5 in May from April’s 49.6, surpassing market expectations of 49.7. This marks the first growth since May 2023. Meanwhile, the Services PMI fell to 53.6 from the previous 54.3, still indicating the fastest expansion in eight months.
On Wednesday, Japan’s Merchandise Trade Balance showed that the trade deficit increased to ¥462.5 billion in April, swinging from the previous surplus of ¥387.0 billion. This outcome exceeded market expectations of a deficit of ¥339.5 billion. The deficit was mainly driven by the recent depreciation of the JPY, which led to an increase in the value of imports, outweighing gains from a rise in exports.
Japan’s 10-year government bond yield surpassed 1% on Wednesday for the first time since May 2013, fueled by traders’ increasing bets that the Bank of Japan would tighten policy further in 2024
According to the CME FedWatch Tool, the probability of the Federal Reserve implementing a 25 basis-point rate cut in September has seen a slight downtick to 50.7%, compared to 51.6% a day ago.
Federal Reserve Bank of Boston President Susan Collins spoke at the event titled “Central Banking in the Post-Pandemic Financial System” on Tuesday. Collins stated that progress toward interest rate adjustment will take longer and emphasized that patience is the right policy for the Fed, per Reuters.
The USD/JPY pair trades around 156.70 on Thursday. A rising wedge on a daily chart indicates a bearish turn as the price of the USD/JPY pair moves toward the wedge’s tip. However, the momentum indicator 14-day Relative Strength Index (RSI) is still positioned slightly above the 50 mark. A further decline would be considered as the momentum shift.
The USD/JPY pair could retest the upper boundary of the rising wedge near the psychological barrier at 157.00. A break above this level could propel the pair toward the recent high of 160.32.
On the downside, the lower threshold of the rising wedge would act as immediate support, followed by the 21-day Exponential Moving Average (EMA) at 155.49. A break below this level could exert downward pressure on the USD/JPY pair, potentially moving it toward the throwback support at 151.86.
The table below shows the percentage change of the Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the weakest against the New Zealand Dollar.
USD
EUR
GBP
CAD
AUD
JPY
NZD
CHF
USD
-0.03%
-0.03%
-0.07%
-0.09%
0.02%
-0.28%
-0.06%
EUR
0.01%
-0.03%
-0.05%
-0.09%
0.04%
-0.27%
-0.06%
GBP
0.03%
0.01%
-0.02%
-0.06%
0.06%
-0.25%
-0.03%
CAD
0.05%
0.02%
0.01%
-0.05%
0.07%
-0.24%
-0.02%
AUD
0.10%
0.07%
0.07%
0.03%
0.11%
-0.19%
0.03%
JPY
-0.01%
-0.03%
-0.07%
-0.07%
-0.13%
-0.34%
-0.10%
NZD
0.29%
0.27%
0.25%
0.24%
0.19%
0.30%
0.23%
CHF
0.07%
0.04%
0.03%
0.01%
-0.03%
0.09%
-0.21%
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.
The BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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