Japanese Yen remains depressed amid fiscal concerns, BoJ rate hike doubts
- Japanese Yen bulls remain on the sidelines amid fiscal concerns and a positive risk tone.
- The divergent BoJ-Fed expectations help limit the downside for the lower-yielding JPY.
- The lack of follow-through USD buying contributes to capping USD/JPY ahead of US data.
The Japanese Yen (JPY) remains on the back foot against its American counterpart through the Asian session on Wednesday, though any meaningful depreciating move seems elusive. Against the backdrop of Japan's fiscal concerns, the prevalent risk-on environment, and the uncertainty about the likely timing of the next interest rate hike by the Bank of Japan (BoJ) turn out to be key factors undermining the JPY.
The BoJ, however, is still expected to stick to its policy normalization path, which marks a significant divergence in comparison to rising bets for more interest rate cuts by the US Federal Reserve (Fed). The latter keeps a lid on the US Dollar (USD) and could benefit the lower-yielding JPY. Moreover, speculations that authorities will intervene in markets to bolster the domestic currency warrant caution for the JPY bears.
Japanese Yen struggles to lure buyers as a combination of factors offset BoJ rate hike bets
- Japan's fiscal position remains a source of concern, especially after the cabinet approved Prime Minister Sanae Takaichi’s record-setting ¥122.3 trillion budget. Furthermore, investors remain unsure about when the next Bank of Japan interest rate hike might occur amid expectations that energy subsidies, stable rice prices, and low petroleum costs would keep inflation low into 2026.
- BoJ Governor Kazuo Ueda said on Monday that the central bank will continue raising rates if economic and price developments move in line with forecasts. Ueda added that adjusting the degree of monetary support will help the economy achieve sustained growth, and that wages and prices are likely to rise together moderately, keeping the door open for further policy tightening.
- The outlook pushed yields on the rate-sensitive two-year and the benchmark 10-year Japanese government bonds (JGB) to their highest level since 1996 and 1999, respectively. The resultant narrowing of the rate differential between Japan and other major economies holds back traders from placing aggressive bearish bets around the Japanese Yen amid intervention speculations.
- The US Dollar struggles to capitalize on the previous day's positive move amid dovish US Federal Reserve expectations and concerns about the central bank's independence under US President Donald Trump's administration. Traders also seem reluctant and opt to wait for key US macro data, which could offer more cues about the Fed's rate cut path and provide some meaningful impetus.
- Wednesday's US economic docket features the ADP report on private-sector employment, the ISM Services PMI, and JOLTS Job Openings. The focus, however, will remain glued to the US Nonfarm Payrolls (NFP) report on Friday. The latter would play an important role in determining the next leg of a directional move for the USD ahead of the latest US consumer inflation figures next Tuesday.
USD/JPY mixed technical setup warrants caution; 156.15 confluence holds the key for bulls
The USD/JPY pair's overnight move up validated the 156.15 confluence support – comprising the 100-period Simple Moving Average (SMA) on the 4-hour chart and the lower boundary of a short-term ascending channel. The said area should act as a key pivotal point, which, if broken decisively, will be seen as a fresh trigger for bearish traders and pave the way for deeper losses.
Meanwhile, the Moving Average Convergence Divergence (MACD) histogram is slightly negative and contracting around the zero line, suggesting fading bearish momentum. The Relative Strength Index (RSI) prints 52, neutral with a modest positive tilt. The rising SMA supports a buy-on-dips stance, though subdued MACD readings signal limited follow-through for now. RSI near the midline reinforces a consolidative tone within the channel.
Initial support is at the 156.15 confluence, while resistance stands at 157.15, or the upper boundary of the channel. A close above the latter could unlock further gains, whereas failure to overcome it would keep USD/JPY contained inside the rising corridor.
(The technical analysis of this story was written with the help of an AI tool)
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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