USD/JPY hovers near 144.00, weighs down by growing expectations of Fed rate cuts
- USD/JPY depreciates as the Japanese Yen rises due to Japan’s industrial Production rising 0.5% MoM in May.
- Japan's Ryosei Akazawa said that he will continue efforts to reach an agreement with the United States.
- The US Dollar struggles due to rising odds of the Fed initiating rate cuts in September.
USD/JPY edges lower after losing recent gains registered in the previous session, trading around 144.20 during the European hours on Monday. The pair holds losses as the Japanese Yen (JPY) probably receives support following the preliminary Japan’s industrial Production release, which climbed by 0.5% month-over-month in May, recovering from a 1.1% decline in April. However, the industrial Production figures missed market forecasts of a 3.5% growth, as elevated US tariffs continued to cloud the outlook.
On Monday, Japan's top trade negotiator, Ryosei Akazawa, noted that he will continue working with the United States (US) to reach an agreement while defending national interests. Akazawa mentioned that he is aware of President Trump's comment to decline to discuss on auto. It was unfortunate I couldn't meet Bessent this time.
Additionally, the USD/JPY pair also struggles due to a weaker US Dollar (USD), driven by the strengthening expectations of the Federal Reserve (Fed) cutting interest rates at the September meeting. On Friday, the President of the Federal Reserve Bank of Minneapolis, Neel Kashkari, noted that he was sticking to his view that cooling inflation would allow the Fed to cut its policy rate twice that year, beginning in September.
On the data front, the US Personal Consumption Expenditures (PCE) Price Index climbed by 2.3% year-over-year in May, up from the 2.2% rise in April (revised from 2.1%). This reading came in line with market expectations. Meanwhile, the core PCE Price Index, which excludes volatile food and energy prices, rose 2.7%, following the previous 2.6% increase (revised from 2.5%). Traders will likely observe US labor market data scheduled to be released later this week to gain further impetus on the US Federal Reserve’s (Fed) policy outlook.
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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