Japanese Yen strengthens amid reviving BoJ rate hike bets; lacks bullish conviction
- The Japanese Yen stalls the overnight pullback from the weekly low against USD.
- The BoJ rate hike uncertainty might hold back the JPY bulls from placing fresh bets.
- The Fed’s hawkish tilt could limit USD losses and offer support to the USD/JPY pair.
The Japanese Yen (JPY) attracts some buying during the Asian session on Thursday and, for now, seems to have stalled its sharp retracement slide from the weekly low touched against a bullish US Dollar (USD) the previous day. Minutes of the Bank of Japan's (BoJ) September meeting, released on Wednesday, kept hopes alive for an imminent interest rate hike. This comes on top of speculation that Japanese authorities might intervene to stem further weakness in the domestic currency, offering some support to the JPY.
Meanwhile, investors remain uncertain about the likely timing of the next BoJ rate hike amid expectations that Japan's new Prime Minister Sanae Takaichi will pursue aggressive fiscal spending plans and resist policy tightening. This, along with a modest recovery in the global risk sentiment, could act as a headwind for the safe-haven JPY. The USD, on the other hand, holds steady near its highest level since late May on the back of the US Federal Reserve's (Fed) hawkish tilt and could help limit the downside for the USD/JPY pair.
Japanese Yen might struggle to attract any meaningful buyers amid BoJ uncertainty
- Minutes of the Bank of Japan's September 18-19 meeting highlighted a cautious rate-hike path as policymakers weighed inflation dynamics and trade risks. Board members, however, said that the central bank may be able to return to a monetary policy stance of raising interest rates, as the BoJ's 2% price stability target has been more or less achieved.
- Japan’s Vice Finance Minister for International Affairs and top foreign exchange official, Atsushi Mimura, said on Wednesday that the recent JPY moves deviate from the fundamentals. Mimura added that JPY long positions have been shrinking as there is some speculation in the market about Japan's macroeconomic policies, especially fiscal policy.
- Meanwhile, Japan's new Prime Minister, Sanae Takaichi, has a pro-stimulus stance, advocating significant fiscal spending to tackle inflation and boost the economy. Moreover, the BoJ remains reluctant to commit to further rate hikes, which might hold back the Japanese Yen bulls from placing aggressive bets and positioning for strong gains.
- The US Dollar shot to its highest level since late May the previous day and remains well supported by reduced bets for another interest rate cut by the US Federal Reserve in December. Moreover, the upbeat US macro data provided an additional boost to the USD and contributed to the USD/JPY pair's intraday recovery from sub-153.00 levels.
- Automatic Data Processing (ADP) reported that private sector employment in the US rose by 42K in October, compared to 25K estimated and a 29K decrease recorded in the previous month. Adding to this, the Institute for Supply Management's (ISM) Non-Manufacturing Purchasing Managers' Index rose to an eight-month high in October.
- However, the longest US government shutdown in history has caused a blackout of official data, clouding the economic outlook. The US government closure enters its 36th day with no resolution in sight. Economists warn that the longer the impasse drags on, the higher the risk that the fragile economy could shift from bending to breaking.
- This, in turn, is holding back the USD bulls from placing fresh bets and exerting some downward pressure on the USD/JPY pair during the Asian session on Thursday. Traders now look forward to speeches from a slew of influential FOMC members for cues about the future rate-cut path, which should provide a short-term impetus later today.
USD/JPY bulls might now wait for a sustained move beyond the 154.45 horizontal barrier
The USD/JPY pair has been facing stiff resistance near the 154.40-154.45 region over the past week or so. The said area should now act as a key pivotal point, above which spot prices could aim to reclaim the 155.00 psychological mark. Some follow-through buying should pave the way for a move towards the 155.60-155.65 hurdle before spot prices climb further towards the 156.00 round figure.
On the flip side, the 153.65 area could offer some support ahead of the overnight swing low, around the 153.00-152.95 region. Acceptance below the 153.00 mark might prompt some technical selling and make the USD/JPY pair vulnerable to accelerate the corrective fall towards the 152.55-152.50 intermediate support en route to the 152.00 round figure and last week's swing low, around the 151.55 zone.
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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