Japanese Yen hangs near multi-month low against USD; intervention fears limit losses
- The Japanese Yen bears pause for a breather amid intervention fears.
- The BoJ rate hike uncertainty might continue to cap gains for the JPY.
- Less dovish Fed expectations support the USD and the USD/JPY pair.
The Japanese Yen (JPY) touches a fresh low since mid-January against its American counterpart during the Asian session on Thursday, though the intraday downtick lacks bearish conviction. Investors now seem concerned that Japanese authorities could step into the market to stem further weakness in the domestic currency, which, in turn, prompts the JPY bears to take some profits off the table. Apart from this, the uptick lacks any obvious fundamental catalyst and is likely to be limited amid concerns about Japan's ailing fiscal position.
The government proposed a supplementary budget of around ¥25 trillion to fund Prime Minister Sanae Takaichi’s stimulus plan, far exceeding last year’s ¥13.9 trillion extra budget. This, in turn, fuels worries about the supply of new government debt and lifts Japan’s borrowing costs to the highest level in decades. Moreover, data released earlier this week showed that Japan's economy contracted in Q3 for the first time in six quarters, which could put additional pressure on the Bank of Japan (BoJ) to delay raising interest rates and cap the JPY.
Japanese Yen bears not ready to give up yet amid fiscal concerns and delayed BoJ rate hike bets
- Japan's Finance Minister Satsuki Katayama issued a fresh warning on Wednesday and said that the government was closely monitoring markets with a high sense of urgency. This, in turn, fuels intervention fears and offers some support to the Japanese Yen during the Asian session on Thursday.
- Japan's yield curve has steepened sharply as investors priced in a bigger-than-anticipated spending package from the new Prime Minister Sanae Takaichi. Goushi Kataoka – member of a key government panel – said earlier this week that Japan must compile a stimulus of around ¥23 trillion.
- Kataoka added on Wednesday that the Bank of Japan is unlikely to raise interest rates before March, arguing policymakers must first confirm that a major fiscal package is lifting domestic demand. This signals the Takaichi administration's preference for interest rates to stay low.
- Government data released on Monday showed that Japan's economy contracted for the first time in six quarters during the July-September period. This further tempers expectations that the BoJ will hike rates soon and might hold back the JPY bulls from placing aggressive bets.
- The US Dollar moves back closer to its highest level since May, touched earlier this month amid less dovish Federal Reserve expectations. In fact, chances of another rate cut in December fell after the October FOMC meeting minutes showed that members were divided about how to proceed.
- Traders now look forward to the delayed release of the US Nonfarm Payrolls (NFP) report for more cues about the Fed's rate-cut path. This, in turn, will play a key role in influencing the USD and providing some impetus to the USD/JPY pair later during the North American session.
USD/JPY needs to consolidate before the next leg up amid slightly overbought daily RSI
The daily Relative Strength Index (RSI) is flashing slightly overbought conditions and holding back traders from placing fresh bullish bets around the USD/JPY pair. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for any further appreciating move.
Any corrective slide, however, might now find decent support near the 156.65-156.60 region, below which the USD/JPY pair could extend the fall towards the 156.00 mark. The latter should act as a pivotal point, and a sustained weakness below might prompt some technical selling, which should pave the way for deeper losses.
On the flip side, the 157.40-157.45 region could act as an immediate hurdle, above which the USD/JPY pair could accelerate the momentum towards reclaiming the 158.00 round figure. The next relevant resistance is pegged near mid-158.00s before spot prices aim to test the January swing high, around the 159.00 neighborhood.
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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