USD/JPY holds steady near 148.00 mark; upside potential seems limited
- USD/JPY gains some positive traction and stalls its corrective slide from a nearly two-month high.
- Hawkish BoJ expectations and sustained safe-haven buying underpin the JPY and cap spot prices.
- Fed rate cut bets keep the USD bulls on the defensive and further act as a headwind for the major.
The USD/JPY pair attracts some buyers during the Asian session on Wednesday and for now, seems to have snapped a three-day losing streak to sub-148.00 levels. The uptick, however, lacks follow-through, warranting some caution before confirming that the recent pullback from the vicinity of the 150.000 psychological mark, or the highest level since August 1 touched last week, has run its course.
The Summary of Opinions from the Bank of Japan's (BoJ) September policy meeting showed that board members debated the feasibility of raising interest rates in the near term. This reaffirmed market expectations that the central bank would stick to its policy normalization path. Apart from this, rising geopolitical tensions and the US government shutdown might continue to lend some support to the safe-haven Japanese Yen (JPY), which, in turn, could act as a headwind for the USD/JPY pair.
Meanwhile, the BoJ's hawkish stance marks a significant divergence in comparison to bets that the US Federal Reserve (Fed) will lower borrowing costs twice this year. The latter fails to assist the US Dollar (USD) in attracting any meaningful buyers. Moreover, the divergent BoJ-Fed policy outlooks should benefit the lower-yielding JPY and contribute to capping the USD/JPY pair. Hence, it will be prudent to wait for strong follow-through buying before positioning for any meaningful appreciating move.
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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