USD/JPY weakens below 155.00 as BoJ rate hike speculation grows
- USD/JPY loses traction to around 154.80 in Wednesday’s early Asian session.
- US NFP increased by 64,000 in November, stronger than expected; Unemployment Rate rose to 4.6%.
- BoJ is set to raise the short-term policy rate to 0.75% from 0.5% at its December meeting on Friday.
The USD/JPY pair attracts some sellers near 154.80 during the early Asian session on Wednesday. The Japanese Yen (JPY) strengthens against the US Dollar (USD) amid growing speculation that the Bank of Japan (BoJ) will hike rates to 0.75% on Friday.
The US Nonfarm Payrolls (NFP)rose by 64,000 in November after declining 105,000 in October, the US Bureau of Labor Statistics (BLS) reported on Tuesday. This reading came in stronger than the market expectation for an increase of 50,000. The report also showed that NFP declined by 105,000 in October. Meanwhile, the Unemployment Rate in the US climbed to 4.6% in November from 4.4% in October.
The Greenback faced some selling pressure in the immediate reaction to the mixed US employment report. Fed policymakers are divided on whether additional rate cuts are needed in 2026. The median Fed official forecasts just one reduction next year, although traders expect two.
The BoJ is anticipated to raise interest rates to 0.75% from 0.5% at a two-day policy meeting ending on Friday, a three-decade high, and pledge to keep hiking borrowing costs. Traders ramped up their bets for an imminent BoJ rate hike following Governor Kazuo Ueda's comments last week, saying that the likelihood of the central bank's baseline economic and price outlook materializing had been gradually increasing. Firming BoJ rate hike expectations could boost the JPY and act as a headwind for the pair in the near term.
Federal Reserve (Fed) officials are scheduled to speak later on Wednesday, including New York Fed President John Williams and Atlanta Fed President Raphael Bostic. Any hawkish comments from Fed policymakers might help limit the Greenback’s losses.
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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