USD/JPY flat lines near 148.00 as traders await Fedspeak
- USD/JPY trades flat around 148.00 in Monday’s early Asian session.
- The US central bank delivered an expected rate cut but signaled little urgency to lower borrowing costs.
- BoJ kept interest rates unchanged, with two members voting for a rate hike.
The USD/JPY pair holds steady near 148.00 during the early Asian session on Monday. The US Dollar (USD) strengthens against the Japanese Yen (JPY) as the US Federal Reserve (Fed) cut interest rates last week but signaled gradual easing in the future. Traders will keep an eye on the Fedspeak later on Monday.
The Fed decided to reduce the interest rates at its September meeting, as widely expected. However, the US central bank signaled little urgency to lower borrowing costs quickly in the coming months. The Fed's rate projection, or the so-called "dot plot," showed a forecast of two more rate cuts this year. A less dovish-than-expected Fed expectation could provide some support to the Greenback in the near term.
"It's really a week of two halves," said Marc Chandler, chief market strategist at Bannockburn Forex. "The votes, the actual dots, were not as dovish as the statement and the concerns about the labor market suggested," added Chandler.
The Bank of Japan (BoC) kept its short-term interest rate unchanged at 0.5% for a fifth consecutive meeting, as expected. Nonetheless, the decision passed with only seven of nine members in favor, as two voted for a rate hike, an unusual split that surprised markets.
A surprise dissent by two board members against the decision to hold rates steady unsettled investors and shifted their focus back on how soon the BoJ will next raise rates, which might boost the JPY. Following the meeting, markets have priced in above a 75% chance of the BoJ raising interest rates by 25 basis points (bps) at the October meeting.
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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