Japanese Yen struggles near weekly low vs. USD despite upbeat Household Spending data
- Japanese Yen remains on the back foot against a firmer USD for the fourth straight day.
- BoJ rate hike doubts and rising China-Japan tensions continue to undermine the JPY.
- The USD climbs to a one-month high and supports USD/JPY ahead of the US NFP report.
The Japanese Yen (JPY) drifts lower for the fourth straight day against a firmer US Dollar (USD) and slides to the lower end of its weekly range during the Asian session on Friday. Government data released earlier today showed that Japan's Household Spending rebounded in November. The JPY, however, struggles to attract any buyers on the back of worries that consumption momentum could fade if inflation continues to outpace wage growth in early 2026. This could further complicate the Bank of Japan's (BoJ) task of normalizing monetary policy and undermine the JPY amid an escalating China–Japan row.
Apart from this, concerns about Japan's fiscal situation and a stable performance across equity markets turn out to be other factors weighing on the safe-haven JPY. The USD, on the other hand, prolongs a two-week-old uptrend and touches a one-month top amid some repositioning ahead of the crucial US Nonfarm Payrolls (NFP) report. This, in turn, lifts the USD/JPY pair further beyond the 157.00 mark. However, bets for more rate cuts by the Federal Reserve (Fed), which marks a significant divergence in comparison to hawkish BoJ expectations, could cap the USD and benefit the lower-yielding JPY.
Japanese Yen bulls remain on the sidelines amid BoJ uncertainty and China-Japan issues
- The Statistics Bureau of Japan reported earlier this Friday that Household Spending rebounded following a sharp decline in October and unexpectedly rose 2.9% from a year earlier in November. The upbeat data, however, does little to provide any respite to the Japanese Yen amid persistent real wage weakness.
- In fact, government data showed on Thursday that Japan's inflation-adjusted real wages fell for the 11th consecutive month, by 2.8% in November, suggesting that the underlying trend of inflation outpacing wage growth has not changed. This poses a challenge for the Bank of Japan and undermines the JPY.
- Furthermore, China escalated its dispute with Japan and has begun restricting exports of rare earths and rare-earth magnets to Japan. This ban follows the recent Taiwan-related remarks by Japan’s Prime Minister and heightens supply-chain risk for Japanese manufacturers, which further weighs on the JPY.
- BoJ Governor Kazuo Ueda left the door open for further policy tightening, reiterating earlier this week that the central bank would continue to raise interest rates if economic and price developments move in line with forecasts. This, along with rising geopolitical tensions, could lend support to the safe-haven JPY.
- The US Dollar, on the other hand, preserves its gains registered over the past two weeks and stands firm near a one-month top, providing an additional boost to the USD/JPY pair. The upside for the USD, however, seems limited amid dovish US Federal Reserve expectations and ahead of the US employment details.
- Traders have been pricing in the possibility that the US central bank will lower borrowing costs in March and deliver another interest rate cut by the end of this year. Traders, however, opt to wait for more cues about the Fed's rate-cut path. Hence, the focus remains on the release of the US Nonfarm Payrolls report.
USD/JPY bulls have the upper hand while above the 100-period SMA on H4
The 100-period Simple Moving Average (SMA) on the 4-hour chart is gently rising at 156.31, pointing to sustained upward bias. The USD/JPY pair holds above this gauge, with the average acting as immediate dynamic support. The Moving Average Convergence Divergence (MACD) line stands above the Signal line and back in positive territory, with a modestly expanding histogram that reinforces improving momentum. The Relative Strength Index (RSI) at 62 shows firm buying pressure without overbought conditions. If momentum persists, the pair could extend higher, while a pullback would bring the 100 SMA into focus.
(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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