USD/JPY holds positive ground above 154.00 on Powell's cautious remarks
- USD/JPY edges higher to around 154.05 in Monday’s early Asian session.
- BoJ’s Ueda said there are no preset ideas about the timing of the next rate hike.
- Powell's cautious remarks lift the US Dollar against the Japanese Yen.
The USD/JPY pair trades with mild gains near 154.05 during the early Asian session on Monday. The Japanese Yen (JPY) softens against the US Dollar (USD) as the Bank of Japan (BoJ) disappointed traders hoping for a more hawkish stance on future rate hikes. The US ISM Manufacturing Purchasing Managers Index (PMI) is due later on Monday.
The BoJ held its interest rate steady at 0.5% at its October meeting last week. It's the sixth consecutive meeting that the Japanese central bank has maintained the same level since a rate hike in January. BoJ Governor Kazuo Ueda said that the central bank wants to gather more information on how the initial momentum of the 2026 shunto will be before deciding to raise the policy rate.
Ueda avoided discussing the specific timing of a possible rate hike, however, saying the BoJ has "no prejudgment about whether and when to raise the policy rate.” His less hawkish tone on future rate hikes weighs on the JPY and creates a tailwind for the pair.
On the USD’s front, the US Federal Reserve (Fed) dampens expectations for a December rate cut, which provides some support to the Greenback. The Fed lowered its benchmark overnight borrowing rate for the second time this year to a range of 3.75%-4.0%.
Nonetheless, Fed Chair Jerome Powell noted that a further reduction in the policy rate at the December meeting is not a foregone conclusion. Fed funds futures traders are now pricing in nearly a 63% chance of a cut in December, down from 93% a week ago, according to the CME FedWatch Tool.
The US government shutdown has now entered its sixth week with no easy endgame in sight amid a deadlock in Congress on the Republican-backed funding bill. A prolonged federal shutdown could fuel economic concerns and drag the USD lower against the JPY 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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