Japanese Yen bulls have the upper hand amid hawkish BoJ, ahead of US NFP report
- The Japanese Yen extends its consolidative price move amid wavering BoJ rate hike expectations.
- A softer risk tone, trade war fears, and geopolitical risks could offer support to the safe-haven JPY.
- A modest USD uptick is seen acting as a tailwind for the USD/JPY pair ahead of the US NFP report.
The Japanese Yen (JPY) struggles to capitalize on the previous day's modest gains and oscillates in a narrow range against its American counterpart during the Asian session on Friday. The near-term bias, meanwhile, seems tilted in favor of the JPY bulls in the wake of the Bank of Japan's (BoJ) more hawkish stance. In fact, the BoJ remains on track for more interest rate hikes, while other major central banks, including the US Federal Reserve (Fed), are seen lowering borrowing costs further.
Apart from this, a slight deterioration in the global risk sentiment, persistent geopolitical tensions and trade war fears continue to underpin the safe-haven JPY. Meanwhile, the recent decline in the US Treasury bond yield keeps the US Dollar (USD) depressed near a multi-week low and further benefits the lower-yielding JPY. Traders, however, opt to wait for the US Nonfarm Payrolls (NFP) report for cues about the Fed's rate-cut path before placing fresh directional bets around the USD/JPY pair.
Japanese Yen might continue to draw support from a combination of factors
- The Japanese Yen struggles to gain any meaningful traction as traders look to find out whether the Bank of Japan will deliver another interest rate hike at its upcoming monetary policy meeting later this month.
- BoJ Governor Kazuo Ueda said last week that rate hikes are nearing in the sense that economic data are on track. BoJ's Toyoaki Nakamura said on Thursday that the central bank must move cautiously in raising rates.
- Russia has pounded Ukraine with long-range weapons and sustained ground assaults in the country’s east during the past week and has shown little sign of fatigue in the conflict, which has been raging for nearly two years.
- Adding to this, concerns that US President Donald Trump's trade tariff could trigger the second wave of global trade wars temper investors' appetite for riskier assets and offer some support to the safe-haven JPY.
- According to the CME Group's FedWatch Tool, the markets are pricing in a 70% chance that the Federal Reserve will lower borrowing costs by 25 basis points at the December meeting and a 30% probability of a pause.
- Rate cut bets held broadly steady after the US Department of Labor (DoL) reported on Thursday that Initial Jobless Claims rose to 224K for the week ended November 29, from the previous week's upwardly revised 215K print.
- The yield on the benchmark 10-year US government bond languishes near its lowest level since October 22 and further benefits the lower-yielding JPY, though a modest US Dollar uptick lends support to the USD/JPY pair.
- The market attention remains glued to the US Nonfarm Payrolls (NFP) report, which will guide Fed policymakers on their next policy decision. This, in turn, will influence the USD and provide a fresh impetus to the currency pair.
USD/JPY traders seem non-committed; 100-day SMA pivotal support holds the key for bulls
From a technical perspective, the overnight swing low, around the 148.65 region, now seems to protect the immediate downside ahead of the 149.00 mark and the 100-day SMA, currently around the 148.80 region. The latter should act as a key pivotal point, which if broken decisively will be seen as a fresh trigger for bearish traders. Given that oscillators on the daily chart are holding in negative territory, the USD/JPY pair might then slide to the 148.10-148.00 region en route to the 147.35-147.30 zone and the 147.00 round figure.
On the flip side, attempted recovery might now confront some resistance near the 150.55 region. This is followed by the 150.70 hurdle, the 151.00 round figure and the weekly high, around the 151.20-151.25 zone touched on Wednesday. A sustained move beyond the latter could lift the USD/JPY pair to the 152.00 mark, or the very important 200-day SMA. Some follow-through buying will suggest that the recent corrective decline from a multi-month high touched in November has run its course and shift the bias in favor of bullish traders.
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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