The Japanese Yen (JPY) posts minor gains amid a somewhat softer US Dollar (USD) on Tuesday. The USD/JPY pair has pulled back to session lows just below 162.00 from Monday's highs in the 162.40 area, easing concerns about an immediate intervention by the Japanese authorities.
The US Dollar Index (DXY), which measures the value of the Greenback against a basket of currencies, hovers without a clear direction within a tight range around 101.00, giving some oxygen to the battered JPY. The DXY shows a corrective structure from last week’s highs near 101.80, as the disappointing Nonfarm Payrolls figures released last week prompted markets to dial down bets of immediate Federal Reserve rate hikes.
Japanese data released on Tuesday has failed to provide any significant support to the Yen. Labour Cash Earnings moderated beyond expectations in May, easing pressure on the BoJ to tighten its monetary policy; Overall Household Spending contracted for the sixth consecutive month, yet less than expected, and the Leading Economic Index grew below expectations.
Markets remain skeptical about BoJ's tightening commitment
In this context, the Yen remains unable to put a significant distance from the 40-year lows at 162.84 hit last week. The wide divergence between the Bank of Japan’s (BoJ) interest rates and those of the other major central banks remains a heavy weight for any JPY recovery.
Beyond that, investors remain reluctant to buy into the BoJ’s commitment to continue tightening interest rates, aware that Japanese Prime Minister Sanae Takaichi is a firm advocate of keeping a loose monetary policy to support economic growth.
Looking forward, Quek Ser, FX Analyst at the United Overseas Bank (UOB), sees chances of further Yen recovery if the USD fails to break above the 162.40 area: “The likelihood of USD closing below 160.60 will remain intact as long as 162.45 (‘strong resistance’ level) is not breached.”
The US calendar is thin on Tuesday, and investors are likely to look from the sidelines ahead of the release of the minutes from the last Federal Open Market Committee (FOMC) meeting, due on Wednesday.
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