Market news
17.03.2023, 10:46

USD/JPY bounces off daily low, keeps the red above 133.00 amid banking crisis fears

  • A combination of factors prompts fresh selling around the USD/JPY pair on Friday.
  • Expectations for a less hawkish Fed and sliding US bond yields weigh on the buck.
  • Banking crisis woes benefit the safe-haven JPY and contribute to the intraday slide.
  • The BoJ’s dovish outlook could cap gains for the JPY and lend support to the major.

The USD/JPY pair fails to capitalize on the previous day's solid recovery of over 200 pips from its lowest level since February 14 and comes under some renewed selling pressure on Friday. The pair, however, manages to rebound a few pips from the daily low touched during the early European session and now trades above the 133.00 mark, still down nearly 0.40% for the day.

Growing acceptance that the Federal Reserve will adopt a less hawkish stance at its upcoming meeting on March 21-22 exerts fresh downward pressure on the US Dollar, which, in turn, is seen weighing on the USD/JPY pair. In fact, the markets are now pricing in a greater chance of a smaller 25 bps lift-off in the wake of last week's collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank. This leads to a fresh leg down in the US Treasury bond yields and continues to undermine the Greenback.

Apart from this, the global flight to safety benefits the Japanese Yen (JPY) and further contributes to the offered tone around the USD/JPY pair. Despite multi-billion-dollar lifelines for troubled banks in the US and Europe, investors are still trying to determine whether the risk of a full-blown global banking crisis has been tamed and remain concerned about widespread contagion. This, along with looming recession fears, takes its toll on the risk sentiment, which is evident from a softer tone around the equity markets.

That said, a more dovish stance adopted by the Bank of Japan (BoJ) should keep a lid on any further gains for the JPY and help limit losses for the USD/JPY pair, at least for the time being. In fact, the outgoing BoJ Governor Haruhiko Kuroda said earlier this Friday that there is room to cut interest rates further into negative territory from the current -0.1%. This, in turn, warrants some caution for aggressive bearish traders and positioning for an extension of the recent downward trajectory witnessed over the past two weeks or so.

Market participants now look forward to the release of the Michigan US Consumer Sentiment Index, due later during the early North American session, for short-term trading opportunities. The focus, however, will remain glued to the outcome of the highly-anticipated FOMC monetary policy meeting, scheduled to be announced next Wednesday. Nevertheless, the USD/JPY pair remains on track to register a third successive week of losses and should continue to take cues from the broader sentiment surrounding the Greenback.

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