USD/JPY Weaker on Banking Worries Despite Positive Economic Data

Key Takeaways

• USD/JPY pair ends slightly lower after a late-session rally
• Market sentiment remains fragile, with concerns over the banking sector persisting
• A bounce in U.S. Treasury yields may provide some support to the dollar
• Japan’s sustained inflation above the Bank of Japan’s target could impact the Yen’s position as a safe-haven asset

Overview

The Dollar/Yen closed slightly lower on Friday after a strong late session rally erased nearly all of its earlier losses. Early in the session, the safe-haven yen was in demand, with the Forex pair touching a seven-week low at 129.641 before rebounding.

On Friday, the USD/JPY settled at 130.721, down 0.131 or -0.10%. The Invesco CurrencyShares Japanese Yen Trust ETF (FXY) finished at $71.24, down $0.11 or -0.15%.

Japanese Yen Surges Against the Dollar on Banking Concerns Despite Positive Economic Data

Early Friday, the Japanese Yen saw a significant surge against the dollar due to concerns surrounding banks. Despite positive economic data exceeding expectations, market sentiment remained low.

European banking stocks took a hit, with major players Deutsche Bank and UBS Group experiencing the brunt of worries that the industry’s most severe issues since the 2008 financial crisis have yet to be contained.

European banks experienced a decline of over 5%, reflecting the mood of risk aversion in the market, which is bolstering the safe haven Yen’s position.

The U.S. Flash Purchasing Managers’ Index (PMI) data, which exceeded expectations, failed to improve the greenback’s standing as market sentiment was fragile.

The USD/JPY mounted a big turnaround late in the session as the dollar strengthened in reaction a bounce in U.S. Treasury yields.

Japanese Core Consumer Inflation Slows in February, but Excluding Energy Costs Reaches Four-Decade High

On Friday, data showed that while Japan’s core consumer inflation decelerated in February, an index that excludes energy costs reached a 40-year peak.

As inflation remains above the Bank of Japan’s 2% objective, analysts believe that the data will sustain market anticipations of a prompt adjustment to its bond yield control strategy.

Short-Term Outlook

The USD/JPY is expected to continue to face volatility in the short term as market sentiment remains fragile and concerns over the banking sector persist.

However, a bounce in U.S. Treasury yields may provide some support to the dollar, while Japan’s sustained inflation above the Bank of Japan’s target could lead to an adjustment in its bond yield control strategy and potentially impact the Yen’s position as a safe-haven asset.