Daily Digest Market Movers: Japanese Yen seems vulnerable amid BoJ’s uncertainty rate outlook
- The Bank of Japan's cautious approach, indicating that accommodative financial conditions will be maintained for an extended period, fails to assist the Japanese Yen in registering any meaningful recovery from a multi-decade low.
- Hopes that the Iran-Israel conflict will not escalate further ease geopolitical tensions in the Middle East and remain supportive of a generally positive risk tone, which turns out to be another factor undermining the safe-haven JPY.
- The JPY bulls shrugged off a survey by the Finance Ministry, showing that about 70% of companies in Japan will raise pay scale in the fiscal year 2024 and that about 40% of firms were struggling with labor shortages even after raising wages.
- The recent verbal warnings from Japanese officials that they would intervene in the markets to stem any further weakness in the domestic currency hold back bearish traders from placing fresh bets and help limit deeper losses.
- Investors keenly await the outcome of the highly-anticipated two-day BoJ policy meeting on Friday for cues on when the central bank will raise interest rates again, which, in turn, will determine the near-term trajectory for the JPY.
- The US Dollar is pressured by weaker US PMI figures for April released on Tuesday, indicating that the economic upturn lost momentum at the start of the second quarter, and contributes to keeping a lid on the USD/JPY pair.
- The S&P Global Composite Purchasing Managers Index (PMI) fell to 50.9 in April's flash estimate, suggesting that the business activity in the US private sector continued to expand, albeit at a softer pace than in the previous month.
- Meanwhile, the S&P Global Manufacturing PMI dropped to 49.9 from 51.9 in April, highlighting a contraction in business activity, while the gauge for the services sector declined to 50.9 from March's final reading of 51.7.
- Investors, however, seem convinced that the Federal Reserve is unlikely to begin its rate-cutting cycle in June and have also scaled back their expectations about the total number of rate cuts in 2024 to less than two.
- Traders now look to Wednesday's release of the US Durable Goods Orders, though the focus remains on the Advance Q1 GDP and the Personal Consumption Expenditures (PCE) Price Index on Thursday and Friday, respectively.
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