Japanese Yen loses ground as US Dollar advances due to hawkish Fed
- The Japanese Yen edges lower as the US Dollar appreciates on hawkish hold from the Fed on Wednesday.
- The downside of the Japanese Yen could be limited as caution prevails ahead of the BoJ policy decision on Friday.
- CME FedWatch Tool indicates that the likelihood of a Fed rate cut in September decreased to 61.5, down from 69.4% a week earlier.
The Japanese Yen (JPY) retraces its recent gains on Thursday as the US Dollar (USD) advances following a hawkish hold from the US Federal Reserve (Fed), boosting the USD/JPY pair. The Federal Open Market Committee (FOMC) left its benchmark lending rate in the range of 5.25%–5.50% for the seventh consecutive time in its policy meeting on Wednesday, as widely anticipated.
The Japanese Yen may see limited downside as caution prevails ahead of the Bank of Japan’s (BoJ) policy decision on Friday. While the BoJ is widely expected to leave interest rates unchanged, traders will be closely monitoring any announcements regarding a potential reduction in the central bank's monthly bond purchases.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, recovers its recent losses. This recovery can be attributed to the hawkish stance of the Federal Reserve. FOMC policymakers now anticipate just one rate cut this year, down from the three that were projected in March.
The CME FedWatch Tool indicates that the likelihood of a Fed rate cut in September by at least 25 basis points has decreased to 61.5, down from 69.4% a week earlier.
Investors await the US weekly Initial Jobless Claims and Producer Prices Index (PPI) on Thursday to gain further impetus on economic conditions in the United States (US).
Daily Digest Market Movers: Japanese Yen declines as Fed adopts a hawkish stance
- In a press conference following the Fed's decision, Fed Chair Jerome Powell remarked that the restrictive stance on monetary policy is producing the expected effects on inflation.
- The US Consumer Price Index (CPI) rose 3.3% year-over-year in May, slightly below both the previous reading and expectations of 3.4%. The core CPI, which excludes volatile food and energy prices, increased by 3.4% year-over-year in May, compared to a 3.6% rise in April and an estimated 3.5%.
- Japanese Producer Price Index (PPI) data showed that producer prices jumped 2.4% year-on-year in May, exceeding market expectations of a 2.0% rise, fueling concerns that this might lead to higher consumer inflation.
- Japan Finance Minister Shunichi Suzuki said on Tuesday it is important to continue efforts to achieve economic growth and attain fiscal health to retain confidence in the country's fiscal policy, per Reuters.
- Nearly two-thirds of economists surveyed in a Reuters poll on Tuesday anticipate that the Bank of Japan will opt to commence tapering its monthly bond purchases at Friday's policy meeting. This decision marks a significant initial move aimed at gradually reducing the central bank's burgeoning balance sheet.
- Takeshi Minami, Chief Economist at Norinchukin Research Institute said, "There is no longer any reason to continue large-scale purchases of government bonds since it has been judged that a 2% rise in prices is within reach," per Reuters.
- According to Reuters, while speaking to parliament last week, Bank of Japan (BoJ) Governor Kazuo Ueda stated that inflation expectations are gradually rising but have yet to reach 2%. "We have been scrutinizing market developments since the March decision. As we proceed to exit our massive monetary stimulus, it's appropriate to reduce bond purchases," Ueda said.
Technical Analysis: USD/JPY could test the key level of 157.00
USD/JPY trades around 156.90 on Thursday. Analysis of the daily chart indicates a bullish inclination as the pair consolidates within an ascending channel pattern. Moreover, the 14-day Relative Strength Index (RSI) is above the 50 level, suggesting a tendency for upward momentum.
An immediate hurdle is noticeable at the psychological level of 157.00. A breakthrough above this level could provide support, potentially guiding the USD/JPY pair toward the vicinity of the significant level of 158.00, following the upper boundary near 158.80. Further resistance is observed at 160.32, marking its highest level in over thirty years.
On the downside, the lower boundary of the ascending channel is near the 50-day Exponential Moving Average (EMA) at 155.09. A breach below this level could intensify downward pressure on the USD/JPY pair, potentially driving it toward the throwback support area around 152.80.
USD/JPY: Daily Chart
Japanese Yen price today
The table below shows the percentage change of the Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the weakest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.04% | 0.06% | 0.12% | 0.18% | 0.13% | 0.22% | 0.06% | |
| EUR | -0.05% | 0.00% | 0.09% | 0.13% | 0.09% | 0.18% | 0.02% | |
| GBP | -0.07% | -0.01% | 0.07% | 0.10% | 0.05% | 0.16% | -0.01% | |
| CAD | -0.13% | -0.08% | -0.06% | 0.04% | -0.01% | 0.10% | -0.08% | |
| AUD | -0.18% | -0.13% | -0.11% | -0.05% | -0.06% | 0.05% | -0.12% | |
| JPY | -0.13% | -0.07% | -0.05% | 0.01% | 0.06% | 0.10% | -0.06% | |
| NZD | -0.22% | -0.18% | -0.16% | -0.10% | -0.06% | -0.11% | -0.18% | |
| CHF | -0.06% | 0.00% | 0.01% | 0.07% | 0.12% | 0.06% | 0.18% |
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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
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 current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.
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 supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.
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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