Japanese Yen gives back gains as US Dollar recovers from election shock
- USD/JPY bounces up to 158.40 from session lows at 157.80 and holds within previous ranges.
- Dollar bears lose traction as markets gradually shift their focus away from the midterm elections to the strong US macroeconomic data.
- The BoJ's monetary policy minutes endorsed hopes of further monetary tightening in December.
The Japanese Yen (JPY ) has given away most of the previous gains on Thursday, as the US Dollar (USD) bounced up from highs with the dust of the midterm elections settling and the strong US macroeconomic data coming to the fore. The USD/JPY pair has returned to the 158.40 area, after bouncing from session lows near 157.80
The decline in Oil prices and the pullback in US Treasury yields, following the outcome of the US midterm elections, are still weighing heavily on US Dollar bulls. The bearish momentum observed on Wednesday and during Thursday's Asian session, however, seems to be losing traction on Thursday as the market digests the election results and shifts the focus to the upbeat US macroeconomic data.
US Data reflects strong economic momentum
The ADP Employment report, released on Wednesday, showed an 86K increase in net jobs in October, beating market expectations of a 69K reading, and following strong JOLTS Job Openings figures on Thursday, which have boosted expectations of a bright Nonfarm Payrolls report on Friday:
Also on Wednesday, the US ISM Services Purchasing Managers' Index (PMI) showed a moderate slowdown to 54.5 in October, from 54.9 in September, but still at levels consistent with a solid sector’s activity, with Employment growing and price pressures steady at high levels. ISM Manufacturing PMI showed a similar picture on Monday and, on Tuesday, Factory Orders beat expectations.
These figures endorse market hopes that the Federal Reserve will hike interest rates by another quarter-point at its December meeting, which is deterring investors from placing large US Dollar shorts
In Japan, the minutes of the Bank of Japan’s (BoJ) September monetary policy meeting revealed that policymakers see a need for further interest rate hikes, with some of them calling for a steeper tightening cycle, bolstering hopes of another rate hike in December. The Yen appreciated moderately after the release of the minutes before buckling on US Dollar strength during the European session.
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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