Japanese Yen Depreciates Due to Investors' Caution Ahead of ISM PMI

Japanese Yen Depreciates as investors adopted a cautious stance ahead of the release of the ISM Manufacturing PMI data. The Jibun Bank Manufacturing PMI rose to 50.4 in May, indicating the first expansion in manufacturing activity since May 2023, providing some support to the Yen. However, the US Dollar (USD) depreciated as Federal Reserve officials suggested no further interest rate hikes, impacting the currency pair dynamics.

Key Takeaways:

The Japanese Yen weakens as investors adopt caution ahead of the release of the ISM Manufacturing PMI data.
Japan’s Jibun Bank Manufacturing PMI rose to 50.4 in May, indicating the first expansion in manufacturing activity since May 2023.
The US Dollar depreciates as Federal Reserve officials signal no further interest rate hikes, affecting the USD/JPY pair.

Key Developments in the Japanese Economy

Japan's Economy Minister Yoshitaka Shindo announced on Monday that the government aims to achieve a primary balance surplus by FY 2025.

This optimistic outlook was bolstered by the Tokyo Consumer Price Index (CPI) rising to 2.2% year-over-year in May, up from April's 1.8%. Despite these positive signs, the substantial interest rate differential between Japan and other countries continues to exert pressure on the Japanese Yen, supporting the USD/JPY pair.

US Dollar and Federal Reserve's Influence

The US Dollar Index (DXY), which measures the value of the USD against six other major currencies, lost ground after the release of the Federal Reserve's preferred US Personal Consumption Expenditure (PCE) data, showing a moderation in price pressures in April.

Federal Reserve officials suggested that the central bank could achieve its 2% annual inflation target without additional interest rate hikes, leading to downward pressure on US Treasury yields and weakening the USD.

Market Movements and Economic Indicators

The Jibun Bank Japan Manufacturing PMI rose to 50.4 in May, marking the first expansion in manufacturing activity since May 2023. Japan’s Retail Sales grew by 2.4% in April, indicating healthy consumption. Meanwhile, the US PCE Index rose 0.3% month-on-month and 2.7% year-on-year in April, matching expectations. Core PCE climbed 0.2% month-on-month, lower than the expected 0.3% rise.

Atlanta Fed President Raphael Bostic stated that additional rate increases are not necessary to achieve the Fed's 2% inflation target. New York Fed President John Williams also mentioned that inflation should start to decline in the second half of 2024, suggesting no urgent need for further monetary policy action.

Technical Analysis: USD/JPY Pair

The USD/JPY pair trades around 157.40, showing a symmetrical triangle pattern on the daily chart. The 14-day Relative Strength Index (RSI) remains above 50, suggesting a continued bullish bias. The pair is testing the upper boundary of the symmetrical triangle, with the psychological level of 158.00 acting as the next target. Immediate support is seen at the psychological level of 157.00, followed by the 14-day Exponential Moving Average (EMA) at 156.72.

Conclusion

The Japanese Yen's movement is influenced by domestic economic indicators and the broader global economic environment, particularly the actions and signals from the Federal Reserve. Investors are closely watching these developments to gauge the future direction of the Yen and the USD/JPY pair.