Japanese Yen strengthens on US bond buyback, traders brace for US PCE inflation report
- USD/JPY softens to around 158.90 in Wednesday’s Asian session.
- The Treasury could use its General Account to help fund government bond purchases.
- The majority of economists expected the BoJ to raise its rate in September, according to a Reuters poll.
The USD/JPY pair loses ground to near 158.90 during the Asian trading hours on Wednesday. The US Treasury’s bond buyback programs weigh on the US Dollar (USD) against the Japanese Yen (JPY). The US July Personal Consumption Expenditures (PCE) Price Index data will be in the spotlight later on Wednesday ahead of the Jackson Hole symposium on Friday.
US Treasury Secretary Scott Bessent said last week that the US Department of the Treasury will double its bond buyback operations to at least $4 billion per operation, up from the current $2 billion maximum, in an effort to stabilize surging long-term borrowing costs. US Treasury bond buybacks raise concerns as national debt surpasses $40 trillion, dragging the Greenback lower.
On Tuesday, two senior Treasury officials stated that the Treasury could use its near $1 trillion General Account to help fund its recently announced plans to increase purchases of government bonds.
The Bank of Japan (BoJ) said on Wednesday that Governor Kazuo Ueda will not attend the US Federal Reserve’s (Fed) annual Jackson Hole gathering this week due to a schedule conflict. BoJ board member Naoki Tamura will attend on his behalf.
According to an August 17-24 survey in a Reuters poll, 57% of economists expected the Japanese central bank to raise its interest rate in September, a sharp turnaround from a July poll. A minority, 10 of 58, saw it follow with another hike to 1.50% in either October or December.
Yen focus shifts to BoJ tone beyond September meeting
Scotiabank strategists highlight that, while near-term pricing has adjusted to expectations for BoJ tightening around the September 18 meeting, “greater risk will center around the central bank’s tone as market participants look beyond the September 18 meeting,” with investors increasingly sensitive to how policymakers frame the subsequent policy path.
Technical Analysis: USD/JPY remains capped under the 100-day SMA
In the daily chart, USD/JPY holds a bearish near-term bias as spot remains below the 100-day Simple Moving Average (SMA). Price trades above the 20-day Bollinger middle band but is still capped by the upper band, suggesting a corrective rebound inside a broader topside exhaustion phase. The Relative Strength Index (14) at 43.64 sits below the neutral 50 line, hinting that recovery attempts lack strong momentum while sellers retain the upper hand beneath the key moving average barrier.
On the topside, initial resistance is located at the 100-day SMA at 160.00, with a break exposing the Bollinger upper band around 160.30 as the next hurdle. On the downside, immediate support emerges at the 20-day Bollinger middle band at 158.75, ahead of a lower structural cushion at the Bollinger lower band near 157.20.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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