USD/JPY posts modest losses to near 147.00 ahead of US Manufacturing PMI data
- USD/JPY softens to near 147.15 in Tuesday’s early Asian session.
- Markets expect the Fed to deliver its first interest rate cut in nearly a year at the September 16–17 meeting.
- The BoJ rate hike expectations boost the JPY and create a headwind for the pair.
The USD/JPY pair trades with mild losses near a four-week-old trading range support around 147.15 during the early Asian session on Tuesday. The US August ISM Manufacturing Purchasing Managers Index (PMI) will take center stage later on Tuesday.
Rising expectations that the US Federal Reserve (Fed) will lower borrowing costs in the September meeting weigh on the US Dollar (USD) against the Japanese Yen (JPY). Fed Chair Jerome Powell hinted in his Jackson Hole address earlier this month that the unusual balance in the labor market raises the risk of a sharp downturn in employment. Powell further stated that the US central bank is open to easing policy. Additionally, Fed Governor Christopher Waller stated his support for a September cut and the possibility of more to follow.
The prospect that the Bank of Japan (BoJ) will hike interest rates soon provides some support to the JPY and creates a headwind for the pair. According to a Reuters poll in August, nearly two-thirds of economists expect another 25 basis point (bps) hike again later this year, up from just over half a month ago.
Traders will take more cues from the US job data later on Friday, as it might offer some hints about the US economy's health and interest rate outlook. The US economy is estimated to see 75K job additions in August, while the Unemployment Rate is projected to tick higher to 4.3% during the same report period. If the reports show a stronger-than-expected outcome, this could help limit the USD’s losses in the near term.
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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