Japanese Yen languishes near multi-month low against USD amid BoJ uncertainty
- The Japanese Yen remains depressed as Takaichi flags a looser fiscal goal, urges BoJ rate hike caution.
- A positive development to end the US government shutdown also undermines the safe-haven JPY.
- Dovish Fed expectations and economic concerns weigh on the USD, and might cap the USD/JPY pair.
The Japanese Yen (JPY) continues its struggle to attract any meaningful buyers during the Asian session on Wednesday and languishes near the lowest level since February 13, touched against its American counterpart the previous day. The Bank of Japan (BoJ) has been reluctant to commit to further interest rate hikes on the back of Japan's Prime Minister Sanae Takaichi's pro-stimulus stance. This, along with the optimism over a potential deal to end the US government shutdown, turns out to be a key factor undermining the safe-haven JPY.
Meanwhile, a summary of BoJ policymakers' opinions at the October meeting released on Monday indicated a chance of a rate hike in December. Adding to this, speculation that Japanese authorities may step into the market to stem further weakness in the domestic currency might hold back the JPY bears from placing aggressive bets. Moreover, a broadly weaker US Dollar (USD), undermined by bets for more rate cuts by the US Federal Reserve (Fed) and concerns about an economic fallout from the US government closure, could cap gains for the USD/JPY pair.
Japanese Yen bears retain control amid uncertainty over the timing for the next BoJ rate hike
- Takuji Aida – an economist chosen to join Premier Sanae Takaichi's panel to debate her administration's growth strategy – told the Nikkei newspaper that the Bank of Japan should avoid raising interest rates in December. Aida added that the central bank should wait at least until January next year as Japan's economy likely contracted in the third quarter.
- The Japanese government is expected to finalise an economic stimulus package on November 21. According to a draft outline, the package will urge the BoJ to focus on achieving strong economic growth accompanied by stable prices, underscoring Prime Minister Sanae Takaichi’s preference for keeping interest rates low to support a fragile recovery.
- The US Senate voted to pass legislation to reopen the federal government and end the longest government shutdown in the nation’s history. The positive development triggers a fresh wave of the global risk-on trade, which, along with the BoJ rate hike uncertainties, continues to undermine the safe-haven Japanese Yen during the Asian session on Wednesday.
- Meanwhile, economists estimate that the prolonged US government closure might have already shaved approximately 1.5 to 2.0% off quarterly GDP growth. Moreover, investors seem tilted towards a more dovish US Federal Reserve and have been pricing in a greater chance of another rate cut in December. This, in turn, keeps the US Dollar depressed.
- In contrast, a summary of BoJ policymakers' opinions at their October meeting released on Monday reflected a view that the time for another interest-rate hike is approaching. Adding to this, the risk of a government intervention to stem further JPY weakness warrants caution for bears, and before positioning for further upside for the USD/JPY pair.
- In the absence of any relevant market-moving US economic releases on Wednesday, traders will look forward to speeches from a slew of influential FOMC members for cues about the Fed's future rate-cut path. This will drive the USD demand, which, along with the broader risk sentiment, should provide short-term impetus to the currency pair.
USD/JPY awaits a move beyond the 154.45-154.50 supply zone before extending the recent move up
From a technical perspective, the USD/JPY bulls need to wait for a sustained strength beyond the 154.45-154.50 pivotal hurdle before placing fresh bets. Given that oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone, spot prices might then aim to conquer the 155.00 psychological mark. The momentum could extend further towards the 155.60-155.65 intermediate barrier en route to the 156.00 round figure.
On the flip side, any corrective pullback below the 154.00 mark could be seen as a buying opportunity near the overnight swing low, around the 153.65 region. This should help limit the downside for the USD/JPY pair near the 153.00 mark. A convincing break below, however, could pave the way for deeper losses and drag spot prices to the 152.15-152.10 region. The latter should now act as a strong near-term base for the currency pair, which, if broken decisively, might shift the near-term bias in favor of bearish traders.
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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