- USD/JPY remains under some selling pressure for the second straight day on Thursday.
- Concerns about a full-blown global banking crisis benefit the JPY and weigh on the pair.
- A modest USD weakness further contributes to the offered tone surrounding the major.
The USD/JPY pair struggles to capitalize on the overnight late rebound from the 132.20 area, or a one-month low and attracts some sellers for the second successive day on Thursday. The pair, however, manages to rebound a few pips from the daily low and trades around the 133.00 mark during the early European session, still down nearly 0.40% for the day.
Despite the positive development surrounding the Credit Suisse saga, concerns about fresh turmoil in the global banking sector continue to drive haven flows towards the Japanese Yen (JPY) and exert pressure on the USD/JPY pair. The troubled Swiss bank announced that it will exercise an option to borrow up to $54 billion from the Swiss National Bank (SNB) to shore up liquidity. Investors, however, remain worried about a broader systemic crisis in the wake of the collapse of two mid-size US banks – Silicon Valley Bank and Signature Bank. This is evident from the prevalent cautious market mood and benefits traditional safe-haven currencies.
Apart from this, a modest US Dollar weakness turns out to be another factor acting as a headwind for the USD/JPY pair, though the prospects for further policy tightening by the Federal Reserve help limit losses. Investors still expect the US central bank to deliver at least a 25 bps rate hike at its upcoming policy meeting on March 21-22. In contrast, the Bank of Japan (BoJ) is expected to stick to its dovish stance to support the fragile domestic economy. In fact, the incoming BoJ Governor Kazuo Ueda recently stressed the need to maintain the ultra-loose policy settings and said that the central bank isn’t seeking a quick move away from a decade of massive easing.
The aforementioned fundamental backdrop warrants caution before placing aggressive bearish bets around the USD/JPY pair and positioning for an extension of last week’s rejection slide from the 200-day Simple Moving Average (SMA). Traders now look to the US economic docket, featuring the release of the usual Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, Building Permits and Housing Starts. Apart from this, the European Central Bank (ECB)-inspired volatility could provide a fresh impetus.
Technical levels to watch
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The US dollar registered a losing session against the Japanese yen during the Asian market today, trading close to the 133.00 mark. The greenback declined upon fears of a potential banking crisis, bringing its worth down against the yen. The US dollar seemed to have softened under the persistent pressure from the ever–volatile currency market which has its traders on edge.
Today’s market action comes in the wake of news that Bank of Japan would be protecting its struggling investors from further economic fluctuations due to ongoing crisis uncertainties. The move by the central bank has caused investors to bear the brunt of an undervalued currency, taking the US dollar towards its deepest decline against the yen in almost four weeks.
Furthermore, the looming fears of a global financial meltdown have set the dollar’s course in a downward spiral. With macroeconomic data reports highlighting a consistent decline in the strength of the greenback, investors have been on a lookout for safe-haven assets including the Japanese yen which is seen as one of the few formidable currencies in the market.
Apart from the current macroeconomic environment, the dollar’s path towards the 133.00 mark has also been attributed to some major geopolitical developments in the Middle East. Although investors have refrained from straddling their bias on the current US – China trade talks, the ongoing civil war in Syria has cast some instability in the exchange rate between the two prominent currencies in the Asian market.
Therefore, the red around the 133.00 mark is likely to continue for the American currency against the Japanese yen in the coming days. Investors have been advised to keep an eye on global market events to make practical decisions while investing in the major currency pairs.