Japanese yen rises on Ukraine fears

The Japanese yen has moved higher on Thursday, as tensions are once again rising over the Ukraine crisis.

Ukraine crisis escalates

Invasions fears have ratcheted upwards, after NATO warned that Russia could use a border skirmish as a pretext for a full-scale invasion of Ukraine. The US has rejected Moscow’s claim that it is reducing its military presence on the border and Russia expelled a senior US diplomat from Moscow earlier in the day. There were hopes that the crisis was easing, but the latest moves indicate that it is far from over. With the rising tensions, risk sentiment has fallen and the safe-haven Japanese yen has posted strong gains against the US dollar and the euro.

After a stellar retail sales report on Wednesday, today’s US data has been softer than expected, which has also weighed on USD/JPY. Unemployment claims rose to 248 thousand, a three-week high, while housing starts and the Philly Fed Manufacturing Index slowed in January and fell short of their estimates. There are no US economic releases on Friday, but we will hear from three FOMC members, which may provide some insight on the Fed’s plans after the March rate lift-off.

The FOMC minutes was a sleeper for the markets, as the release ended up more of a reminder that big things are coming from the Fed, which we all know. Officials discussed the need to raise rates, strongly hinting that lift-off will take place in March. As well, the Fed plans a significant reduction in the balance sheet, which has ballooned to nine trillion dollars as a result of aggressive bond-buying in an effort to stimulate growth during the Covid pandemic. The Fed will end its QE programme in March as scheduled, although some members at the Fed meeting wanted to wind up the program earlier.

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USD/JPY Technical

• 114.79 is under strong pressure in support. Below, there is support at 114.15
• There is resistance at 116.21 and 116.99

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