Japanese Yen bounces off multi-decade low against USD, lacks follow-through
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The Japanese Yen (JPY) ticks higher against its American counterpart during the Asian session on Tuesday and recovers a major part of the previous day's losses to a fresh 34-year low, though any meaningful recovery still seems elusive. Investors remain on alert amid speculations that Japanese authorities will intervene to prop up the domestic currency, which, in turn, is seen lending some support to the JPY. The upside potential, however, seems limited in the wake of expectations that the difference in rates between the US and Japan will stay wide for some time. The Bank of Japan (BoJ) has indicated that it is in no rush in terms of policy normalization and is expected to wait until October before hiking interest rates again. In contrast, investors have been paring back their bets about interest rate cuts by the Federal Reserve (Fed) amid sticky inflation. Hawkish expectations, meanwhile, remain supportive of elevated US Treasury bond yields and continue to underpin the US Dollar (USD). Japan's Finance Minister Shunichi Suzuki, along with other policymakers, said that they are watching currency moves closely and will respond as needed, providing some respite to the Japanese Yen. The flash PMIs released from Japan on Tuesday showed that overall business activity improved substantially at the beginning of the second quarter, albeit did little to impress the JPY bulls. The au Jibun Bank Japan Manufacturing PMI moved closer to breaking back into expansionary territory and improved from 48.2 to 49.9 in April – marking the strongest reading since June 2023. The gauge for the services sector came in at 54.6 for the reported month as compared to 54.1 in March, suggesting that demand remained strong despite weakness in other aspects of the economy. The Bank of Japan is expected to keep its short-term interest target unchanged on Friday and adopt a data-dependent approach in deciding the next interest rate hike amid uncertainties on whether wage hikes will broaden and drive up consumer prices. Traders now look to the flash US PMIs for some impetus, though the focus remains on the Advance US Q1 GDP on Thursday and the Personal Consumption Expenditures (PCE) Price Index on Friday.
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