Japanese Yen weakens on BoJ rate hike uncertainty and US shutdown resolution hopes
- The Japanese Yen attracts follow-through selling amid uncertainty over the BoJ's rate hike.
- Hopes for the end of the US government shutdown undermine the JPY’s safe-haven status.
- A modest USD uptick further supports USD/JPY, though Fed rate cut bets could limit gains.
The Japanese Yen (JPY) drifts lower for the third consecutive day on Tuesday and touches a fresh multi-month low against its American counterpart during the Asian session. On Monday, the Bank of Japan's (BoJ) Summary of Opinions indicated divided views on rate hikes. Adding to this, BoJ’s Junko Nakagawa said the central bank will proceed cautiously with policy decisions. This, in turn, reinforced market expectations that the BoJ could delay raising interest rates amid bets on a large-scale stimulus package under Japan's Prime Minister Sanae Takaichi's new administration, and continues to weigh on the JPY.
Meanwhile, investors cheered the possibility of an end to the US government shutdown, which turns out to be another factor undermining the JPY's safe-haven status. The US Dollar (USD), on the other hand, draws some support from a further rise in the US Treasury bond yields and offers additional support to the USD/JPY pair. However, expectations that Japanese authorities might intervene to stem further weakness in the domestic currency warrant some caution for the JPY bears. Moreover, bets for more rate cuts by the US Federal Reserve (Fed) could cap gains for the USD and the currency pair.
Japanese Yen bears retain control amid the uncertainty over the timing of the next BoJ rate hike
- A summary of Bank of Japan policymakers' opinions at their October meeting, released on Monday, reflected a view that the time for another interest-rate hike is approaching. However, there was some uncertainty over the effect of new Prime Minister Sanae Takaichi’s policies on the economy and prices.
- Furthermore, several board members suggested the fallout from higher US tariffs and Japanese companies' wage momentum as key factors in deciding the timing of the next rate hike. Adding to this, BoJ's Junko Nakagawa warned of soft consumption and concern over the US economic outlook.
- In fact, data released last Friday indicated that existing economic conditions might be influencing household expenditure and fueling speculations that weaker private consumption could cool demand-driven inflation. This adds to the BoJ uncertainty and continues to weigh on the Japanese Yen.
- Japan’s Economy Minister Minoru Kiuchi said on Tuesday that the government is increasingly aware that elevated inflation is eroding household purchasing power and will implement measures to cushion the impact of higher prices. He added that a weak JPY continues to push up import costs and consumer prices.
- The Senate cleared a key hurdle late Sunday for a formal debate on a motion to resume funding to federal agencies and end the longest government shutdown in American history. The development provides an additional boost to investors' sentiment and further undermines the safe-haven JPY.
- Meanwhile, the optimism pushes the US Treasury bond yields higher and assists the US Dollar (USD) to attract some buyers for the second straight day, further lending support to the USD/JPY pair. However, bets for another Federal Reserve rate cut in December could cap gains for the Greenback.
USD/JPY could accelerate the positive momentum above the 154.45-154.50 horizontal barrier
A sustained strength beyond the 154.45-154.50 horizontal barrier will be seen as a fresh trigger for the USD/JPY bulls. Given that oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone, spot prices might then aim to conquer the 155.00 psychological mark. The momentum could extend further towards the 155.60-155.65 intermediate hurdle before the currency pair eventually climbs to the 156.00 round figure.
On the flip side, any corrective pullback below the Asian session trough, around the 154.00 mark, could be seen as a buying opportunity near the 153.60-153.50 region. This should help limit the downside for the USD/JPY pair near the 153.00 round figure. A convincing break below the latter, however, could pave the way for deeper losses to the 152.15-152.10 region, which should now act as a strong near-term base for the currency pair.
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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