Japanese Yen loses ground due to decline in Japan's Foreign Reserves

• The Japanese Yen depreciates as investors turn cautious ahead of the US NFP.
• Japan’s Foreign-exchange reserves fell to $1,231 billion in May, marking the lowest level since February 2023.
• The US Dollar struggles due to rising hopes for two interest rate cuts by the Fed in 2024.

The Japanese Yen (JPY) edges lower on Friday, possibly influenced by the reduced Japanese Foreign Reserves released by the Ministry of Finance for May. Foreign exchange reserves dropped significantly to $1,231 billion in May from $1,279 billion, marking the lowest level since February 2023, as the government conducted foreign exchange intervention operations to defend the JPY.

Japanese Finance Minister Shunichi Suzuki stated on Friday that he will take action against excessive currency volatility when necessary and will assess the effectiveness of intervention. Suzuki emphasized the importance of maintaining market trust in public finances, mentioning that there is no fund limit for FX intervention, according to Reuters.

The US Dollar (USD) struggled as the lower employment data from the United States (US) fueled hopes for two interest rate cuts by the US Federal Reserve (Fed) in 2024. A Reuters poll from May 31 to June 5 indicated that nearly two-thirds of economists now predict an interest rate cut in September. Additionally, the CME FedWatch Tool suggests the probability of a Fed rate cut in September by at least 25 basis points has increased to nearly 70.0%, up from 51.0% a week earlier.

Daily Digest Market Movers: Japanese Yen depreciates ahead of US labor data

• Japanese bond yields have pulled back from recent highs, with the benchmark 10-year government bond yield falling below 1% for the first time in two weeks.
• On Thursday, Initial Jobless Claims showed the number of people claiming unemployment benefits in the US increased by 8,000 to 229,000 for the week ending May 31, surpassing market expectations of 220,000.
• According to Reuters, while speaking to parliament on Thursday, Bank of Japan (BoJ) Governor Kazuo Ueda stated that inflation expectations are gradually rising but have yet to reach 2%. Ueda said, "We are still scrutinizing market developments since the March decision. As we proceed in exiting our massive monetary stimulus, it's appropriate to reduce bond purchases." Additionally, the Bank of Japan (BoJ) board member Toyoaki Nakamura remarked that, according to current data, it is suitable to maintain the policy intact for the time being.
• The ISM US Services PMI on Wednesday soared to 53.8 in May, marking its highest level in nine months and significantly surpassing the forecast of 50.8. In contrast, the ADP US Employment Change report showed that 152,000 new workers were added to payrolls in May, the lowest in four months and well below the forecast of 175,000 and the downwardly revised figure of 188,000 for April.
• The Jibun Bank Japan Services PMI was revised higher to 53.8 in May from the previous figure of 53.6. Despite the upward revision, it fell short of April's 8-month peak of 54.3, indicating the softest growth in the service sector since February.

Technical Analysis: USD/JPY holds gains above 155.50

USD/JPY trades around 155.80 on Friday. The daily chart suggests a sideways trend as the pair consolidates within a symmetrical triangle pattern. Additionally, the 14-day Relative Strength Index (RSI) is slightly below the 50 level, indicating a potential for a bearish bias.

Immediate support for the USD/JPY pair could be found at the psychological level of 155.00. Further support appears at the 50-day Exponential Moving Average (EMA) at 154.73. A break below this level could increase pressure on the pair, potentially leading it toward the throwback support region around 151.86.

On the upside, a key barrier is evident at the upper threshold of the symmetrical triangle. If the USD/JPY pair breaks above this level, it would weaken the bearish bias and could lead the pair to test the psychological barrier of 157.00, followed by the level of 160.32, its highest level in over thirty years.

USD/JPY: Daily Chart