Volatility Alert: Japanese Yen on Edge with BOJ’s Interest Rate Move!

Volatility Alert: Japanese Yen on Edge with BOJ's Interest Rate Move!

The Japanese yen strengthened above 147 against the dollar, hitting its highest level in more than a month, after final data showed Japan’s economy returned to growth in the fourth quarter of 2023, avoiding a technical recession.

The country’s GDP expanded 0.4% and 0.1% year-on-year and quarter-on-quarter, respectively, in the three months to December, reversing from preliminary figures showing a 0.4% and 0.1% contraction during the period.

Those numbers also followed a 3.3% and 0.8% slump YoY and QoQ, respectively, in the third quarter of last year.

Today’s reading indicates that the Japanese economy avoided a technical recession in the fourth quarter, with increased capital expenditure helping offset a broad decline in consumer spending.

Export-heavy Japanese companies have benefited largely from a weaker yen, which in turn saw stellar profits through 2023.

Capital expenditure grew 2% q-o-q, much more than the preliminary reading, which showed a contraction of 0.1%. But private consumption remained weak, with Monday’s data showing a contraction of 0.3% in the quarter, worse than an initially estimated 0.2% drop.

The latest figures bolstered speculations that the Bank of Japan could start raising interest rates soon, with some traders wagering on a March rate hike.

BOJ board member Junko Nakagawa recently stated that “prospects for the economy to achieve a positive cycle of inflation and wages are in sight.” Externally, the yen benefited from a decline in the dollar and Treasury yields amid a dovish outlook on Federal Reserve monetary policy.

Strength in the Japanese economy gives the Bank of Japan more headroom to end its negative interest rates and yield curve control policies. Recent market speculation has the central bank primed to begin tightening its ultra-loose policy by as soon as next week.

Technical Outlook – Japanese Yen

Volatility Alert: Japanese Yen on Edge with BOJ's Interest Rate Move!

The USDJPY continued to trade under pressure. The pair fell almost 2.5% from a high of 150.884 (February 12, 2024) to a recent low of 146.5340. Last week it fell 2% to 147.053 from last week’s close of 150.60.

In the February view, the USDJPY pair failed to break the massive 150.9550 resistance and reversed from the peak at 150.884. 00. And broke the decisive support at 148.7525.00

The chart above showed the rally that started on 01/16/2023 as impulse wave 1-5 ending at the November 2023 high of 151.908. Now the pair has reversed ABC in a corrective wave

The formation of a long descending candlestick indicates that more pressure is likely to come. Additionally, RSI 14 and 9 SMA also gives a negative crossover. The pair is now moving to crucial support below 146.2550 and looks to drop to 145.10-144.00 soon.

On the face of it, immediate resistance is above 150.95.00 at 149.5025.

Commodity Samachar
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