USD/JPY declines to near 154.50 amid Fed rate cut doubts
- USD/JPY edges lower to around 154.50 in Friday’s early Asian session.
- Bets on a Fed rate cut in December remained pretty divided.
- Takaichi has pledged to continue the "Abenomics" policy mix, calling on the BOJ to fully cooperate with the government.
The USD/JPY pair declines to near 154.50 during the early Asian session on Friday. The US Dollar (USD) softens against the Japanese Yen (JPY) as bets on a Federal Reserve (Fed) rate cut in December remain pretty divided. The Fed’s Lorie Logan and Raphael Bostic are due to speak later in the day.
Markets grew much less confident about a December rate reduction. Some Fed policymakers are concerned about flying blind on data at a time when the most recent figures suggest a weakening job market, but inflation remains higher than the Fed's 2% target.
Moreover, White House press secretary Karoline Leavitt said on Wednesday that some of the data, particularly for some, may never be released. Uncertainty over the US economic outlook and the expectation that economic data released after the end of the shutdown will reveal US labor market weakness could weigh on the Greenback in the near term.
Markets are now pricing in a more than 51% possibility that the Fed will cut its benchmark overnight borrowing rate by a quarter percentage point at its December meeting. That marks a sharp drop from the 62.9% chance that markets priced in a day ago, according to the CME FedWatch Tool.
On the other hand, concerns that Japan's Prime Minister Sanae Takaichi will seek to influence the Bank of Japan (BoJ) into delaying rate hikes could weigh on the JPY and create a tailwind for the pair. Takaichi said on Wednesday that the government and the central bank will continue to work together to develop the national economy. She had pledged to continue the former Prime Minister's policy mix, Abenomics, and called on the BoJ to fully cooperate with the government.
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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