Japanese Yen outperforms this week as market bets on BoJ's extended tightening cycle
- The Japanese Yen recovers against the US Dollar after a corrective move on Thursday.
- Fears of BoJ remaining on a monetary tightening path for longer strengthen the Japanese Yen.
- Investors keenly await the US CPI data release for August.
The Japanese Yen (JPY) bounces back against the US Dollar (USD) on Friday after a sharp corrective move the previous day. In the European trade, the USD/JPY is down 0.3% to near 154.00 at the time of writing.
The Japanese currency outperformed this week, holding 1.26% gains against the US Dollar, amid expectations that the Bank of Japan (BoJ) will remain on the monetary tightening path even if it hikes interest rates at next week's meeting by 25 basis points (bps) to 1.25%, its highest level in 31 years.
Japanese Yen Price This week
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.19% | 0.09% | -1.25% | 0.20% | 0.37% | 1.02% | 0.83% | |
| EUR | -0.19% | -0.10% | -1.41% | 0.01% | 0.22% | 0.84% | 0.64% | |
| GBP | -0.09% | 0.10% | -1.41% | 0.11% | 0.30% | 0.94% | 0.74% | |
| JPY | 1.25% | 1.41% | 1.41% | 1.55% | 1.71% | 2.36% | 2.16% | |
| CAD | -0.20% | -0.01% | -0.11% | -1.55% | 0.22% | 0.83% | 0.63% | |
| AUD | -0.37% | -0.22% | -0.30% | -1.71% | -0.22% | 0.65% | 0.45% | |
| NZD | -1.02% | -0.84% | -0.94% | -2.36% | -0.83% | -0.65% | -0.20% | |
| CHF | -0.83% | -0.64% | -0.74% | -2.16% | -0.63% | -0.45% | 0.20% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
Analysts at MUFG observe that the Japanese Yen’s strength is driven by “likely positioning adjustments ahead of upcoming risk events, coupled with ongoing market pricing on a faster pace of monetary policy tightening by the Bank of Japan.” They add that “a 25bps hike at the BOJ’s 18 September meeting has already been largely priced in, while attention is shifting towards the BOJ’s communication about the broader path of rate hikes at subsequent meetings.”
Meanwhile, a note from Rabobank states that market chatter has intensified around the prospect that the BoJ “might even think about a 50bps hike” has also intensified.
In the United States (US), investors await the Consumer Price Index (CPI) data for August, which will be published at 12:30 GMT. The US CPI data is expected to have a significant impact on the Federal Reserve’s (Fed) interest rate expectations.
Ahead of the US CPI data, chances for a Fed interest rate hike at the upcoming policy meeting next week are 72.4%, according to the CME FedWatch tool.
USD/JPY Technical Analysis
On the daily chart, USD/JPY trades at 153.96, retaining a bearish near-term bias as spot holds well beneath the 20-day Exponential Moving Average (EMA) at 156.99. The persistent placement of price below this short-term EMA suggests rallies remain capped, while the Relative Strength Index (RSI) at 30 hints that downside momentum is heavy but approaching oversold territory, which could slow the pace of further declines rather than reverse the trend on its own.
On the topside, initial resistance is located at the 20-day EMA near 157.00, and a daily close above this barrier would be needed to ease immediate downside pressure and open the way for a more sustained recovery phase. Until that level is reclaimed, the pair is vulnerable to additional weakness, with traders likely to fade rebounds while momentum lingers close to oversold readings on the RSI.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
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