USD/JPY Slips as Bank Turmoil Eases, Fear of Global Banking Crisis Fades

Key Takeaways

• USD/JPY slipped on Friday after banks moved to ease stress on the financial system.
• Action to rescue First Republic Bank boosted risk appetite globally, dampening demand for the safe-haven US Dollar.
• Some investors are hoping the Fed will slow down on its aggressive rate-hike campaign at its upcoming monetary policy meeting.
• The turmoil in the banking sector is complicating the outlook for Fed policy, with the impact potentially more nuanced than the Fed simply reversing course.

Overview

On Friday, the Dollar/Yen slipped as authorities and banks worked to ease stress on the financial system. This comes after major currencies took a hit this week due to bank turmoil.

However, the action taken to rescue First Republic Bank in the United States on Thursday helped boost risk appetite globally on Friday. This in turn dampened demand for the safe-haven US Dollar.

At 09:38 GMT, the USD/JPY is trading 133.034, down 0.726 or -0.54%. On Thursday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) finished at $69.83, down $0.15 or -0.21%.

Large US Banks Inject $30 Billion to Ease Financial System Stress

Large US banks injected $30 billion in deposits into First Republic with oversight by authorities. The bank was caught up in a widening crisis triggered by the collapse of two other mid-size US banks over the past week. Credit Suisse also announced earlier on Thursday that it would borrow up to $54 billion from the Swiss National Bank after the central bank threw a financial lifeline to the embattled Swiss lender.

Japanese Yen Remains Elevated as Traders Seek Safe-Haven Assets Amidst US Banking Crisis Fears

Despite these efforts, the Japanese yen remained elevated as traders still looked to safe-haven assets. They feared that recent stress unfolding across banks in the US and Europe could be just an early stage of a widespread systemic crisis. Japan’s Ministry of Finance, Financial Services Agency, and Bank of Japan officials were set to meet on Friday evening to discuss financial markets amid fears of the US banking crisis.

Turmoil in the Banking Sector is Complicating the Outlook for Fed policy

Some analysts believe that the market gyrations of the past week are not rooted in a banking crisis but are evidence of financial cracks resulting from the fastest interest rate hike campaigns since the early 1980s.

Markets have started to price in the damage caused by this approach, which some see as a recession foretold. As a result, the Federal Reserve’s monetary policy meeting next week is now at the center stage.

Some investors are hoping that the Fed could slow down on its aggressive rate-hike campaign to ease the stress on the financial sector.

However, the turmoil in the banking sector is complicating the outlook for Fed policy. Analysts believe that the impact may be more nuanced than the Fed simply reversing course.

Daily USD/JPY Technical Analysis

The main trend is down according to the daily swing chart, however, Thursday’s closing price reversal bottom suggests momentum may be getting ready to shift to the upside.

A trade through 131.722 will signal a resumption of the downtrend. A move through 137.911 will change the main trend to up.

The minor trend is also down. A trade through 135.109 will confirm a shift in momentum.

Support is a retracement zone at 132.700 to 131.339. Resistance is 133.992, followed by 134.817 – 135.547.

Daily USD/JPY Technical Forecast

Trader reaction to a minor pivot at 133.416 is likely to determine the direction of the USD/JPY on Friday.

Bearish Scenario

A sustained move under 133.416 will indicate the presence of sellers. The first downside target is 132.770. If this fails then look for the selling to extend into 131.722, followed by 131.339.

Bullish Scenario

A sustained move over 133.416 will signal the presence of buyers. The first target is 133.992. Overtaking this level will indicate the buying is getting stronger with 134.817 – 135.547 the next target area. Since the main trend is down, sellers could come in on a test of this area.