Japanese Yen strengthens as soft US PPI tempers Fed outlook
- USD/JPY weakens to around 159.45 in Friday’s Asian session.
- US PPI inflation was unchanged in July, dimming US rate hike expectations.
- BoJ will likely raise interest rates either in September or October.
The USD/JPY pair loses traction to near 159.45 during the Asian trading hours on Friday. Softer US inflation reports and fears of currency intervention weigh on the US Dollar (USD) against the Japanese Yen (JPY). Traders will keep an eye on the release of the US July Retail Sales data, which will be published later on Friday.
The Bureau of Labor Statistics revealed on Thursday that the US Producer Price Index (PPI) was unchanged in July, bolstering market expectations that the US Federal Reserve (Fed) could keep interest rates unchanged next month. This figure followed a revised 0.1% decline in June and cooled more than the 0.2% expected.
Meanwhile, the core PPI, which excludes food and energy, increased 0.2% MoM in July, below the market consensus of a 0.3% gain. On an annual basis, the headline PPI climbed 4.7% YoY in July, while the core PPI rose 4.2% YoY during the same period.
Market expectations have switched in recent days, with traders now pricing in a rate hike in October or December after putting heavy odds that the US central bank would move at its September policy meeting.
The Bank of Japan (BoJ) is likely to raise interest rates either in September or October, according to Bloomberg. Analysts said the central bank’s fears over the JPY’s weakness driving up prices and the government’s desire to strengthen the impact of the recent US-Japan currency intervention are aligning them on the need for a near-term raise.
Yen narrative questioned as BoJ tightening fails to curb USD strength
Strategists at Brown Brothers Harriman argue that recent market commentary overstates the role of monetary tightening in supporting the Yen. BBH cautions that “the narrative the BoJ needs to tighten more aggressively to strengthen JPY is misleading,” noting that “US-Japan 2-year rate differentials narrowed sharply in 2025 as the BoJ raised rates, yet USD/JPY moved higher.” This divergence, they suggest, underscores that policy rate adjustments alone have not been sufficient to reverse Dollar strength against the Yen.
Technical Analysis: USD/JPY keeps a bearish vibe under the 100-day SMA
In the daily chart, USD/JPY maintains a bearish near-term bias as spot holds below the 100-day moving average (MA) and the Bollinger middle band. Price action is thus capped by a dense resistance area around 160.00–160.50, while the Relative Strength Index (14) at 43.8 sits below the neutral 50 line, hinting at fading upside momentum after the latest rebound.
On the topside, initial resistance is seen at the 100-day MA around 160.00, followed by the Bollinger 20-period simple moving average near 160.50, with the upper Bollinger band far above at 165.52 marking a more distant barrier. On the downside, the first meaningful support emerges at the lower Bollinger band, now tracking close to 155.50, where buyers could attempt to stem deeper corrective losses if the pair extends its retreat.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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