By Taye Obateru
The Japanese Yen continued its bearish trend against the United States Dollar in the second straight week oscillating between 124.38 and 124.41 as at Friday morning.
The dollar/yen pair traded 0.11 per cent higher scillating in a 20 pips narrow range.
The continuous gain of the dollar against the yen is hinged on positive United States fundamentals which make traders to favour the dollar against the yen.
With the expected positive report on the May’s nonfarm payrolls by the US Bureau of Labour Statistics due to be released later Friday, market watchers predict that the upward trend of the dollar against the yen might increase to 124.69 and 124.93 in the weeks ahead.
The market volatility is also expected to be impacted by the on-going Greek negotiations especially with the latest reports that it plans to bundle debt repayments by June ending.
The rise in volatility portends downside risks for the dollar/yen, according to Eric Theoret, a currency strategist at Scotiabank who saw the trend as a response to sentiments relating to the instability in bond and similar factors.
“JPY is flat, consolidating within a narrow range for a second consecutive session, with limited movement in response to BoJ Gov. Kuroda’s speech in which he maintained a focus on longer-term policy objectives.
“USDJPY short-term technical bullish to neutral-momentum signals are fading and the RSI is flirting with a break below 70. USDJPY has been unable to break back above Tuesday’s high near 125 and appears set to test its 9 day MA at 123.74, beyond which we see limited support until 121.50”, he explained.
Other market experts predict that the relative dynamics would continue to exert on the yen with projections of a fluctuation between 120 and 125 in the last two quarters of the year and possibly even weaker in 2016.
Scotiabank Foreign Exchange Outlook, for instance, said the expected implementation of aggressive monetary stimulus by the Bank of Japan could prompt competitiveness among other international currencies.
It noted that despite the moderate recovery in the Japanese economy which saw a 0.6 per cent increase in real Gross Domestic Product (GDP) in the first quarter of 2015, the variance between consumer outlays and production, muted investment and government spending gains, as well as, the effect of the net exports on overall growth remain challenges likely to sustain the yen’s bearish run.
However, there is a call for caution in predicting a continuous slide in the value of the yen to the dollar as other factors are likely to moderate the impact of other market fundamentals.
An efxnews team analysis published on Thursday speculated that those looking into a further sharp yen decline in the coming weeks “may be disappointed”.
“While further widening in yield differentials and/or gains in Japanese stocks could have some bearing on USD/JPY, there are a number of countervailing factors that would limit the decline”, the report said adding, “even if the current USD move extends further as we expect, it doesn’t necessarily mean that USD/JPY will move with it.”
Former Japan’s Vice Finance Minister, Eisuke Sakakibara shared this sentiment, noting that the Bank of Japan’s acceptance of yen’s fall and the Federal Reserve’s tolerance for dollar strength are wearing thin.
Further sharp weakening of JPY is also reported to be unpalatable to Japanese officials as it appears already very cheap based on current valuation matrics.
The yen weakened past 125 per greenback for the first time in 12 years this week and market watchers predict a return to lower levels around 123 before the resumption of an uptrend.