Yen extends gains on Ukraine tensions

The yen has started the trading week with gains, with USD/JPY trading just above the 115 line in the European session.

Yen rises on Ukraine worries

The crisis on the Ukraine/Russia border continues to dictate movement in the global financial markets. Hopes that the situation might be solved diplomatically deteriorated after the US said it expected an invasion on Wednesday and ordered military and diplomatic personnel to evacuate Ukraine. Stock markets are down, oil is up, and the safe-haven Japanese yen has received a boost as nervous investors dump risk and flock to safety.

On the economic calendar, Japan will release fourth-quarter GDP later today. The economy is expected to have rebounded in Q4 as the government lifted health restrictions due to the Omicron wave at the end of September. The consensus for GDP Q4 stands at 1.4% q/q, after a reading of -0.9% in Q3. However, the outlook for 2121 Q1 looks grim, with expectations of negative growth. Omicron has surged in January, forcing the government to reinstate health restrictions across most of the country.

On Monday, a report indicated that consumer confidence plunged to its lowest level since the onset of Covid in early 2020. Consumers are faced with rising prices, and a fall in consumer spending would be bad news for the economy.

In the US, the hot inflation report last week has the markets focused on the number of rate hikes the Fed will deliver this week. The range is from 3-7 hikes, which means there is plenty of uncertainty, and it’s likely that even the Fed hasn’t finalized a course of action. The Fed will have to provide some guidance as to what to expect after March, with liftoff a virtual certainty next month. The size of the hike is still up in the air, although the likelihood of a 0.50% rise has jumped since the inflation release, which showed that inflation accelerated to 7.5% in January, up from 7.0% beforehand.

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USD/JPY Technical

• There is resistance at 116.21, followed by 116.99
• There is support at 114.79 and 114.15

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