USD/JPY gathers strength above 153.00 on potential US-China trade deal
- USD/JPY strengthens to near 153.15 in Monday’s early Asian session.
- US and China agreed on a framework for trade deal ahead of the Trump-Xi meeting.
- US CPI inflation rose 3.0% YoY in September, softer than expected.
The USD/JPY pair extends the rally to around 153.15 during the early Asian session on Monday. The Japanese Yen (JPY) softens against the US Dollar (USD) amid improved risk sentiment as the US and China have agreed on the framework of a potential trade deal.
Top US and Chinese economic officials on Sunday hashed out the framework of a trade deal for US President Donald Trump and Chinese President Xi Jinping to decide later on Thursday in South Korea. US Treasury Secretary Scott Bessent said that discussions on the sidelines of the ASEAN Summit in Kuala Lumpur had eliminated the threat of Trump’s 100% tariffs on Chinese imports starting November 1.
Bessent further stated that he expects China to delay implementation of its rare earth minerals and magnets licensing regime by a year while the policy is reconsidered. Positive developments surrounding US-China trade negotiations boost the risk sentiment, which undermines the safe-haven currency like the JPY and creates a tailwind for the pair.
Nonetheless, softer US inflation data might reinforce the Federal Reserve (Fed) rate cut bets and drag the Greenback lower. Data released by the US Bureau of Labor Statistics (BLS) on Friday showed that the US Consumer Price Index (CPI) rose 3.0% YoY in September, versus 2.9% prior. This reading came in below the market expectation of 3.1%.
On a monthly basis, the CPI increased 0.3% following the 0.4% rise seen in August, while the core CPI increased 0.2%, compared to the market consensus of 0.3%. On a yearly basis, the core CPI was up 3.0% in September.
The JPY weakens against the USD, even as core inflation in Japan accelerated in September for the first time since May. The report came ahead of the Bank of Japan’s (BoJ) policy meeting on Thursday, where the central bank is anticipated to keep the interest rates unchanged.
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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