Japanese Yen struggles amid BoJ uncertainty; USD/JPY holds steady below nine-month high
- The Japanese Yen struggles to capitalize on the previous day’s modest recovery move.
- The BoJ rate hike uncertainty is seen as a key factor behind the JPY’s underperformance.
- Economic concerns keep the USD depressed and cap the upside for the USD/JPY pair.
The Japanese Yen (JPY) oscillates in a narrow band against its American counterpart during the Asian session on Friday and remains close to a nine-month low, touched the previous day. Japan's Prime Minister Sanae Takaichi on Wednesday expressed her administration's preference for interest rates to stay low and asked for close coordination on policy with the Bank of Japan (BoJ). This further cooled market expectations that an interest-rate hike is coming soon and has been a key factor behind the JPY's relative underperformance.
Traders, however, still see a 24% chance of a BoJ rate hike move in December and around 46% odds for an increase by January. Furthermore, the recent decline in the JPY prompted Japan's Finance Minister Satsuki Katayama and Economy Minister Minoru Kiuchi to issue a warning on currency movements, fueling intervention fears. This, along with the risk-off impulse, might hold back the JPY bears from placing aggressive bets, which, along with the prevalent US Dollar (USD) selling bias, caps the upside for the USD/JPY pair.
Japanese Yen bears turn cautious amid speculations about a possible government intervention
- Japan's Prime Minister Sanae Takaichi said this Friday that the government is not in a position to set a new numerical target for the nationwide minimum wage. Takaichi argued that the government's role is to create conditions that allow companies to lift pay faster than inflation.
- Earlier this week, Takaichi said that appropriate monetary policy management should be conducted to achieve both strong economic growth and stable price increases. The remarks were seen as a signal of Takaichi's preference for interest rates to stay low and undermined the Japanese Yen.
- Japan's Finance Minister Satsuki Katayama issued a verbal warning on Wednesday, saying that she will be watching FX moves with a sense of urgency. Moreover, Japan's Economy Minister Minoru Kiuchi said on Friday that a weak JPY can push up CPI through import costs.
- BoJ Governor Kazuo Ueda pointed to resilient consumption driven by stronger household incomes and improving labour-market conditions, also noting that underlying inflation is gradually moving toward the BoJ’s 2% goal. This leaves doors open for an imminent rate hike.
- US President Donald Trump signed a bill to unlock funding and end the longest government shutdown late on Wednesday. Meanwhile, a senior White House official said that key economic reports for October – employment details and inflation data – may not be released at all.
- A growing number of Federal Reserve policymakers signaled caution on further easing amid the lack of economic data. In fact, financial market-based odds of a rate reduction in December have now fallen to 50%. This, however, does little to provide any respite to the US Dollar.
- In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, dived to a fresh two-week trough on Thursday amid economic concerns on the back of a prolonged US government shutdown. This could act as a headwind for the USD/JPY pair.
USD/JPY bulls need to wait for sustained strength beyond 155.00 before placing fresh bets
This week's breakout through the 154.45-154.50 horizontal barrier was seen as a key trigger for the USD/JPY bulls. Moreover, oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone. However, repeated failures to find acceptance above the 155.00 psychological mark warrant some caution before positioning for any further appreciating move. Spot prices might then climb to the 155.60-155.65 intermediate hurdle and eventually aim to reclaim the 156.00 round figure.
On the flip side, any further weakness could be seen as a buying opportunity and find decent support near the 154.00 mark. A convincing break below the said handle, however, might prompt some technical selling and drag the USD/JPY pair to the 153.60-153.50 region en route to the 153.00 round figure. The latter should act as a key pivotal point, which, if broken, might shift the bias in favor of bearish traders and pave the way for a slide towards the 152.15-152.10 area.
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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