Safe-Haven JPY Gains Ground Amid Rising Geopolitical Concerns

The Japanese Yen has seen a resurgence in strength for the second consecutive day, distancing itself from a recent three-month low against the US Dollar (USD). This uptick in the JPY comes as Japan’s top officials hinted at potential intervention measures to prevent further depreciation of the domestic currency. Additionally, escalating geopolitical tensions in the Middle East have bolstered demand for the safe-haven JPY, exerting downward pressure on the USD/JPY pair as it approaches the crucial 150.00 psychological level during the European session.

At the 150.800 level, the JPY encountered strong resistance, marked by the 88.60% Fibonacci retracement level, prompting traders to consider buying the JPY at a premium price. Both the Relative Strength Index (RSI) and Stochastic indicator signal an overbought condition, indicating potential further strength for the JPY.

Despite weaker-than-expected economic data indicating a contraction in Japan’s economy during the fourth quarter, concerns about a technical recession, and uncertainty surrounding the Bank of Japan’s (BoJ) exit from negative interest rates, the JPY remains supported. Meanwhile, Tuesday’s higher-than-anticipated US consumer inflation figures suggest that the Federal Reserve will maintain higher interest rates for an extended period, providing some support to the USD and potentially limiting losses for the USD/JPY pair.

Given the prevailing market dynamics, there is a growing inclination to short the USD against the JPY, as traders anticipate further strengthening of the Japanese currency in the near term.