Japanese Yen gathers strength as BoJ hike bets ramp up
- USD/JPY attracts some sellers to near 153.55 in Wednesday’s early Asian session.
- BoJ is likely to raise its key interest rate by 25 bps in September.
- Traders await US inflation data for more cues on the US interest rate path.
The USD/JPY pair loses momentum to around 153.55 during the early Asian session on Wednesday. The Japanese Yen (JPY) strengthens against the US Dollar (USD) as Bank of Japan (BoJ) policymakers opened the door for a rate hike in September. Traders will closely monitor the key US inflation data, which will be published later this week.
The BoJ is expected to raise its policy rate to 1.25% from the current 1.0% at its September policy meeting, signaling an acceleration in the pace of rate hikes. The move would raise the interest rate to its highest level in about 31 years and follow a rate hike in June, as the Japanese central bank seeks to address the risk of prices rising more than expected amid higher crude oil prices and a weak JPY.
BoJ board member Hajime Takata said last week that the central bank could take a more aggressive approach than expected. He said a 25-basis-point hike “is not necessarily set in stone,” and that generally speaking, back-to-back rate hikes would be a possibility, too.
The US Producer Price Index (PPI) and Consumer Price Index (CPI) inflation data will take center stage later this week. These readings may shed fresh light on the Federal Reserve’s (Fed) next steps at the September meeting. In case of hotter-than-expected inflation outcomes, this could boost the Greenback against the JPY in the near term.
Traders are now pricing in about a 60% chance of an interest rate hike at the US central bank’s policy meeting, according to the CME FedWatch Tool.
USD/JPY downside bias builds as UOB flags year-to-date low as next key support
Analysts at UOB Group note that the recent slide in USD/JPY has materially shifted their medium-term bias. They recall that as of Friday, 04 Sep, when spot was trading around 155.90, they had highlighted that “conditions are deeply oversold” after the sharp drop the previous Thursday and that USD “must close below 155.00 before further declines are likely,” with “the next level to watch below 155.00” identified at “154.20.”
However, UOB points out that “yesterday, in an unexpectedly sharp move, USD broke below 155.00 and plunged to a low of 154.04.” This price action, they argue, “suggests USD is likely to continue to weaken,” with “the next support level to watch” now the “year-to-date low of 152.08.” According to the bank, “the downside pressure will remain intact as long as USD holds below 156.00,” which they now describe as a “strong resistance” level, revised down from 157.50 previously.
Technical Analysis: USD/JPY keeps a bearish vibe amid oversold RSI
In the daily chart, USD/JPY extends a bearish phase with price now below the entire 20-day Bollinger envelope and well under the 100-day Simple Moving Average (SMA). The slide beneath the lower Bollinger Band underscores strong downside pressure, while the Relative Strength Index (14) at 25 signals oversold conditions that could slow, but not yet reverse, the decline.
On the topside, initial resistance is located at the breached lower Bollinger Band around 154.05, followed by the 20-day Bollinger middle band near 158.20, where recovery attempts would likely meet renewed selling. Above that, the 100-day SMA at 159.80 and the upper Bollinger Band near 162.32 compose a broader resistance zone that would need to be reclaimed to ease the current bearish bias.
(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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