USD/JPY gathers strength above 154.00 as US private payrolls rebound in October
- USD/JPY gathers strength to near 154.05 in Thursday’s early Asian session.
- US private sector payrolls rose 42,000 in October, stronger than expected.
- BoJ’s September meeting suggested rising support for another rate hike, though some members remain cautious due to Japan's long history with deflation.
The USD/JPY pair attracts some buyers to around 154.05 during the early Asian session on Thursday. The US Dollar (USD) edges higher against the Japanese Yen (JPY) as US economic data alleviates concerns about the US economy and the labor market, prompting investors to weigh the likelihood of another interest rate cut this year.
Data released by the Automatic Data Processing (ADP) on Wednesday showed that private sector employment in the US rose by 42,000 in October, compared to the 29,000 decrease (revised from -32,000) recorded in September. This figure came in better than the market expectation of 25,000.
Meanwhile, the Institute for Supply Management (ISM) showed the US services sector activity picked up in October amid a solid increase in new orders. The ISM Services PMI rose to 52.4 in October, versus 50.0 prior, exceeding analysts’ forecasts of 50.8. Further repricing of Federal Reserve (Fed) rate cuts after the upbeat US economic data provides some support to the Greenback against the JPY.
On the other hand, the hawkish Bank of Japan (BoJ) minutes might help limit the JPY’s losses. The BoJ minutes from its September meeting indicated a growing number of policymakers believed that conditions were falling into place for interest rates to rise, though some members remain cautious due to Japan's long history with deflation.
Additionally, verbal intervention from Japanese officials could provide some support to the JPY and act as a headwind for the pair. Japan’s Finance Minister Satsuki Katayama said on Friday that it was “important for currencies to move in a stable manner, reflecting fundamentals.” He further added that the government was “closely watching FX moves with a high sense of urgency.”
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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