Japanese Yen consolidates near August highs vs USD as hawkish BoJ, Fed bets clash
- USD/JPY kicks off the new week on a subdued note amid a combination of diverging forces.
- A more hawkish BoJ repricing and a suspected intervention continue to underpin the JPY.
- USD bulls await this week’s US inflation figures for Fed rate cues and cap the currency pair.
The USD/JPY pair struggles to capitalize on Friday's modest bounce from the vicinity of early August lows and kicks off the new week on a softer note. Spot prices currently trade just below the 156.00 mark, though the downside remains cushioned amid mixed fundamental cues.
The Japanese Yen (JPY) is underpinned by a more hawkish repricing of the Bank of Japan (BoJ) rate hike expectations and jitters over a potential official intervention. In fact, traders now seem to have fully priced in a 25 basis point (bps) rate hike at the next BoJ meeting on September 17–18 and see the possibility of a potential follow-up move in December. This, along with subdued US Dollar (USD) price action, turns out to be another factor acting as a headwind for the USD/JPY pair.
The better-than-expected US Nonfarm Payrolls (NFP) report, released on Friday, increased the chances of a rate hike by the US Federal Reserve (Fed) at the September 15-16 meeting amid concerns about price pressures stemming from elevated oil prices. USD bulls, however, seem hesitant and opt to wait for the release of the latest US inflation figures – the Producer Price Index (PPI) and the Consumer Price Index (PPI) on Thursday and Friday, respectively – before placing fresh bets.
However, escalating US-Iran tensions and the widening confrontation in the Strait of Hormuz act as a tailwind for the safe-haven Greenback. This, in turn, should help limit the downside for the USD/JPY pair amid relatively thin liquidity on the back of the Labor Day holiday in the US. Hence, it will be prudent to wait for some follow-through selling below the 155.30-155.20 pivotal support before positioning for an extension of last week's sharp decline from an over one-month peak.
USD/JPY daily chart
Technical Analysis
The USD/JPY pair holds a bearish near-term bias below the technically significant 200-day Simple Moving Average (SMA) at 158.46. Only a sustained break above this barrier would ease the current downside pressure. On the downside, the 155.30-155.25 horizontal zone might continue to act as an immediate support, which, if broken, would set the stage for a further near-term depreciating move.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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