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Dollar pushes wobbly yen above 116

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The Japanese yen continues to lose ground to the US dollar. USD/JPY has climbed above the 116 line for the first time since early February. The yen is on its heels, as USD/JPY is within striking distance of 116.35, which has held since January 2017.

With risk apprehension at high levels due to the Ukraine crisis and the staggering surge in oil prices, financial markets have been volatile and investors have snapped up safe-haven assets, such as the US dollar. The yen is also considered a safe-haven currency, but with the US economy in much better shape than that of Japan, the US dollar has been the big winner from the recent turbulence.

US inflation jumps to 7.9%

In the US, headline CPI continued to accelerate, with a gain of 7.9% for February YoY. This matched the forecast and was up from 7.5% beforehand. With inflation running close to 8%, a rate hike is a virtual given at next week’s meeting. What happens after that is less clear, as the Fed has to worry about stagflation, given the massive upswing in oil prices.

The markets are expecting positive numbers from Japan on Friday, which could give the beleaguered yen a shot in the arm. Household Spending, a key driver of the economy, is expected to show a strong gain of 3.6% YoY for January, following a 0.2% decline in December. The BSI Manufacturing Index is forecast to accelerate to 8.2 for Q1, up from 7.9 beforehand.

On the Ukraine front, a meeting between the foreign ministers of Russia and Ukraine earlier today did not result in any breakthroughs, although the sides agreed to continue to meet. The fighting continues, and with the Russian invasion force appearing to have stalled, there are fears that Russian President Putin could barrel down in frustration and hit more civilian targets. This would exacerbate the massive humanitarian crisis, which has displaced millions of Ukrainians.

For Japan, the crisis in Ukraine could further muddy the outlook for the county’s fragile economy. Oil has pushed has risen as high as USD 130 and a disruption in Russian oil and gas deliveries to world markets will send energy prices even higher, which will raise prices and dampen consumer spending.

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USD/JPY Technical

  • USD/JPY has support at 114.71. Next, the 100-DMA at 114.37 is providing support
  • There is resistance at 116.06 and 116.59

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