USD/JPY Price Forecast: US Dollar keeps crawling towards the key 160.00 area
- USD/JPY pulls back from highs above 160.00 and returns to the 159.50 area.
- The US Dollar trims gains as investors ponder the chances of a Fed rate hike in September.
- Rising hopes of BoJ tightening are providing some support to the JPY.
The Japanese Yen (JPY) pares some losses on Monday’s European session, as the US Dollar (USD) pulls back against its main peers, with the dust from the Jackson Hole meeting settling. The USD/JPY pair has pulled back to the 159.50 area at the time of writing, from Friday’s highs at 160.20, although the rising tensions in Iran and the uptick in Oil prices keep risk appetite subdued.
The US Dollar rallied across the board on Friday, as the Federal Reserve (Fed) Chairman Kevin Warsh struck an unexpectedly hawkish tone, affirming that the central bank should focus on prices, and that policymakers have “work to do” to bring inflation to the bank’s 2% target.
Investors took those comments as a clear signal of an interest rate hike in September, but markets are questioning that view on Monday.
US payrolls data will provide further insight into September's Fed decision
According to TD Securities, a “durable USD rebound” will depend on “stronger policy follow-through & renewed upside in US data,” with investors now looking to the Nonfarm Payrolls (NFP) report due next Friday and next week's inflation data for confirmation.
The experts note that “while US rates digest the updates to the Treasury's buyback program, the curve remains flatter & term premium has dipped,” underscoring a cautious rates backdrop. Against this background, TD Securities analysts see "a stronger print (on NFP) likely to cause a sharper reaction than a subdued employment report,” suggesting that labor market data could be a key catalyst for near-term Dollar moves.
In Japan, preliminary figures revealed that Industrial Production edged up 0.1% in July, against expectations of a 0.6% contraction and following a 1.9% jump in June. At the same time, data released by the Japanese Ministry of Finance showed that Retail Trade rose 4% year-on-year in July, also beating expectations of a 3.0% increase.
These figures add to the case that the Bank of Japan (BoJ) will hike interest rates in September. Comments by BoJ Deputy Governor Ryozo Himino and pressure from US Treasury Secretary Scott Beseent are pointing in that direction. Yen rallies, however, remain limited as the wide gap between BoJ interest rates and those of most of the major central banks and market concerns amid Japan's fragile fiscal stability keep acting as headwinds for a significant Yen recovery.
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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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