Japanese Yen refreshes nine-month low against USD amid BoJ rate hike doubts
- The Japanese Yen continues to be undermined by fiscal concerns and BoJ uncertainty.
- Reduced Fed rate cut bets act as a tailwind for the USD and support the USD/JPY pair.
- Intervention fears and the risk-off mood help limit deeper losses for the safe-haven JPY.
The Japanese Yen (JPY) continues with its relative underperformance through the Asian session on Tuesday and drops to a fresh low since early February against a firmer US Dollar (USD). Reports that Japan's Prime Minister Sanae Takaichi plans tax cuts to boost consumption add to concerns about the government's long-term fiscal health. This comes on top of Japan's weak Q3 GDP print on Monday and could put additional pressure on the Bank of Japan (BoJ) to delay raising interest rates, which, in turn, is seen as a key factor undermining the JPY.
Meanwhile, the recent decline in the JPY prompted some verbal intervention from Japan’s Finance Minister Satsuki Katayama. This, along with a fresh wave of the global risk-aversion trade, is holding back traders from placing aggressive bearish bets around the safe-haven JPY. The USD, on the other hand, attracts some follow-through buying amid less dovish Federal Reserve (Fed) expectations and should act as a tailwind for the USD/JPY pair as investors await the release of FOMC Minutes and the delayed US Nonfarm Payrolls (NFP) report this week.
Japanese Yen bears retain control amid fiscal woes and fading hopes for a BoJ rate hike in December
- Nikkei Asia reported late Monday that Japan's Prime Minister Sanae Takaichi will launch tax-reform talks this week, aiming to cut certain taxes to stimulate investment and consumption while raising others and eliminating breaks to fill the fiscal hole.
- The report added that the ruling Liberal Democratic Party (LDP) and its coalition partner will discuss next year’s tax package, including the agreed-upon removal of gasoline and diesel surcharges, a move that will leave a ¥1.5 trillion revenue gap.
- Government data released on Monday showed that Japan's economy contracted for the first time in six quarters during the July-September period. This tempers bets that the Bank of Japan will hike rates soon amid increasing political resistance.
- Japan’s Finance Minister Satsuki Katayama said at a regular news conference this Tuesday that we have been alarmed by the recent one-sided, rapid moves in the foreign exchange market, fueling speculations about government intervention.
- In fact, Katayama added that the government will thoroughly monitor for excessive fluctuations and disorderly movements in the forex market, with a high sense of urgency, which holds back traders from placing fresh bearish bets around the JPY.
- Several Fed officials recently signaled caution on further monetary easing amid the lack of economic data, forcing investors to scale back their expectations for a rate cut in December. This acts as a tailwind for the US Dollar and the USD/JPY pair.
- The USD bulls, however, seem reluctant and opt to wait for more cues about the Fed's rate-cut path. Hence, the market focus will remain glued to the FOMC Minutes on Wednesday and the delayed US Nonfarm Payrolls report on Thursday.
- In the meantime, traders will scrutinize speeches from influential FOMC members later this Tuesday, which should continue to play a key role in driving the USD demand and producing short-term trading opportunities around the USD/JPY pair.
USD/JPY seems poised to appreciate further; a breakout through the 155.00 mark comes into play
From a technical perspective, the overnight close above the 155.00 psychological mark could be seen as a fresh trigger for the USD/JPY bulls. Furthermore, oscillators on the daily chart are holding in positive territory and are still away from being in the overbought zone, suggesting that the path of least resistance for spot prices remains to the upside. Hence, some follow-through strength beyond the 155.60-155.65 intermediate hurdle, towards reclaiming the 156.00 round figure, looks like a distinct possibility.
On the flip side, any corrective pullback below the 155.00 mark is more likely to find decent support and attract fresh buyers near the 154.50-154.45 region. The latter should act as a key pivotal point, which, if broken decisively, might prompt some technical selling and drag the USD/JPY pair to the 154.00 round figure. The downfall could extend further towards the next relevant support near the 153.60-153.50 region en route to the 153.00 mark.
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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