Japanese Yen struggles against US Dollar ahead of US private employment data
- The Japanese Yen falls back against the US Dollar amid doubts over Yen’s recent strength.
- US-Japan joint intervention propped up the Yen significantly.
- Investors await the US ADP Employment Change and the NFP data for July.
The Japanese Yen (JPY) gives back its early gains and flattens at around 157.70 against the US Dollar (USD) during the European trading session on Wednesday. The USD/JPY bounces back as the Asia-Pacific currency faces pressure, with investors turning cautious regarding the sustainability of its recent strength.
The Japanese Yen outperformed in its past few trading days due to United States (US)-Japan joint intervention to counter " excessive volatility and disorderly movements in the Japanese yen in recent months", Japan’s Ministry of Finance (MoF).
However, market experts believe that the Yen’s strength is provisional and that more measures are needed to make it sustainable.
Japan’s Yen support seen as buying time as focus stays on fundamentals
Analysts at MUFG/BTMU argue that recent official efforts to stabilize the Yen are likely to be modest in scope, stating that, “on balance, we expect US intervention to support the yen to remain relatively small in scale.” They acknowledge that “joint intervention may prove more effective at helping to provide support for the yen in the near-term,” but stress that such measures “can only buy time,” as “there will need to be a change in fundamentals as well to encourage a sustainable reversal of the yen weakening trend that has been in place over the last five years.”
TD Securities echoes this view, characterising “the latest JPY intervention episode as the Japanese government buying time in the FX market for fiscal policy to fundamentally induce global demand for JPY-based assets.” According to their analysts, “the game plan is for FX intervention to buy time for her policies to work and for USD to turn meaningfully lower on the hopes of weaker US economic data or a new bearish USD driver outside of USDJPY.” However, they caution that “unless the BoJ delivers a series of hikes in a swift manner (possibly every quarter) to 2%, we believe the trend is for USDJPY to resume its uptrend – 1y1y OIS for Japan is 1.9% vs US at 4.1%, a 2.2% differential.”
Meanwhile, the US Dollar trades marginally lower ahead of the US ADP Employment Change data for July, which will be published at 12:15 GMT.
Economists at Deutsche Bank anticipate a slightly firmer US labor market print, with private payrolls arriving at 65K, higher from 49K previously.
The US private employment data is expected to have a meaningful impact on the Federal Reserve’s (Fed) interest rate expectations.
Later this week, investors will pay close attention to the US Nonfarm Payrolls (NFP) data for July, which will be released on Friday.
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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