Japanese Yen hangs near multi-week low against USD; seems vulnerable to slide further
- The Japanese Yen struggles to lure buyers amid rising trade tensions and reduced BoJ rate hike bets.
- Domestic political uncertainty keeps the JPY bulls on the defensive amid a broadly firmer USD.
- Traders now look forward to the US consumer inflation figures for some meaningful impetus.
The Japanese Yen (JPY) struggles near a three-week low against its American counterpart during the Asian session on Tuesday and seems vulnerable to prolonging a two-week-old downtrend. US President Donald Trump showed willingness to engage in trade negotiations, fueling hopes for a US-Japan deal before the August 1 deadline and lending some support to the JPY. Meanwhile, the optimism boosts investors' appetite for riskier assets and acts as a headwind for the safe-haven JPY.
Furthermore, bets that the Bank of Japan (BoJ) would keep interest rates low for longer than it wants amid concerns about the economic fallout from higher US tariffs contribute to capping the JPY. Apart from this, political uncertainty ahead of Japan's upper house elections on July 20 might hold back the JPY bulls from placing aggressive bets. Traders also seem reluctant ahead of the US consumer inflation figures, which will provide some meaningful impetus to the US Dollar (USD) and the USD/JPY pair.
Japanese Yen bulls remain on the defensive as trade jitters temper BoJ rate hike bets
- US President Donald Trump softened his stance on trade and told reporters at the White House on Monday that he was open to further trade negotiations. Trump added that Europe has expressed interest in pursuing a different kind of agreement.
- Meanwhile, Trump’s 25% tariff on Japanese goods effective from August 1 could result in a loss of economic momentum and a cooler inflation outlook. This could potentially curb expectations for an immediate interest rate hike by the Bank of Japan.
- Meanwhile, recent opinion surveys suggest that Japanese Prime Minister Shigeru Ishiba's coalition may lose its majority at the upcoming upper house election on July 20. According to the Asahi newspaper, the LDP will likely win just around 35 seats.
- The benchmark 10-year Japanese government bond (JGB) yield rose to 1.595% on Tuesday, a level unseen since October 2008, as investors brace for the possible loss of fiscal hawk Ishiba, straining Japan's already frail finances.
- This would further complicate the BoJ's efforts to normalise its monetary policy, which, along with a turnaround in the global risk sentiment, is seen undermining the Japanese Yen and acting as a tailwind for the USD/JPY pair on Tuesday.
- The US Dollar shot to its highest level since June 24 amid the growing acceptance that the Federal Reserve would keep interest rates elevated in anticipation of worsening inflation as a result of higher import taxes and a still resilient US labor market.
- Hence, the focus remains glued to the release of the latest US consumer inflation figures, due later this Tuesday. The heading Consumer Price Index (CPI) is expected to rise 2.7% YoY in June, while the core gauge is seen coming in at 3.0% YoY.
- Nevertheless, the crucial data would influence market expectations about the Fed's rate-cut path and determine the near-term trajectory for the USD. Apart from this, trade developments should provide a fresh impetus to the USD/JPY pair.
USD/JPY bulls now await a move beyond June's monthly swing high around 148.00
The recent breakout through the 100-day Simple Moving Average (SMA) and a subsequent strength beyond the 147.00 mark was seen as a key trigger for the USD/JPY bulls. Moreover, oscillators on the daily chart have been gaining positive traction and are still away from being in the overbought territory. This, in turn, suggests that the path of least resistance for spot prices remains to the upside and backs the case for an extension of a two-week-old uptrend. From current levels, the June swing high, around the 148.00 mark, could act as an immediate hurdle, above which the currency pair could test the 148.65 region (May swing high) before aiming to reclaim the 149.00 round figure.
On the flip side, any meaningful corrective slide could be seen as a buying opportunity near the 147.20-147.15 region. This is closely followed by the 147.00 mark, below which the USD/JPY pair could accelerate the fall towards the 146.60-146.55 region en route to the 146.00 round figure and the 100-day SMA, currently pegged near the 145.80 region. The latter should act as a key pivotal point and a convincing break below might shift the near-term bias in favor of bearish traders, paving the way for a decline towards the 145.50-145.45 area en route to the 145.00 psychological 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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