- The Japanese Yen continues losing ground amid the uncertainty over BoJ’s rate-hike plans.
- The recent intervention warnings and the risk-off mood do little to lend support to the JPY.
- An extension of the recent USD rally pushes the USD/JPY pair to a nearly three-month high.
The Japanese Yen (JPY) remains on the back foot against its American counterpart and slides to a fresh low since July 31, around the 151.75 region during the Asian session on Wednesday. The uncertainty over the Bank of Japan’s (BoJ) ability to hike interest rates further this year has been a key factor behind the recent JPY downfall since the beginning of this month. This prompted Japanese officials to make verbal warnings on potential government intervention, though it did little to provide respite to the JPY bulls. Even the risk-off mood and Middle East tensions fail to offer any support to the safe-haven JPY.
Meanwhile, the recent upswing in the US Treasury bond yields to a three-month high supports prospects for a further near-term depreciating move for the lower-yielding JPY. Furthermore, the ongoing US Dollar (USD) rally to its highest level since early August, bolstered by bets that the Federal Reserve (Fed) will cut rates at a slower pace, suggests that the path of least resistance for the USD/JPY pair remains to the upside. Traders, however, might refrain from placing aggressive bets and opt to wait for the release of Tokyo consumer inflation data on Friday for fresh cues about the BoJ’s rate-hike plans.
Daily Digest Market Movers: Japanese Yen remains depressed amid doubts over further BoJ rate-hikes this year
- The Japanese Yen touched the weakest level in almost three months against its American counterpart amid doubts over the Bank of Japan’s rate-hike plans.
- The JPY bears seem unaffected by the recent verbal interventions by Japanese authorities, following a slide below the key 150.00 psychological mark.
- The prospects of slower rate cuts by the Federal Reserve and bigger fiscal deficits after the US Presidential election led to a selloff in the bond market.
- The yield on the benchmark 10-year US government bond rises to levels last seen in July and lifts the US Dollar to its highest level since early August.
- San Francisco Fed President Mary Daly noted that the economy is in a better place, inflation has fallen and the labor market has returned to a more sustainable path.
- Odds have swung in favor of former President Donald Trump winning the US election next month, fueling speculations about inflation-generating tariffs.
- As markets look for the impending strike by Israel against Iran, Hezbollah fired rockets at two bases near Tel Aviv and a naval base west of Haifa on Tuesday.
- Diplomatic efforts, so far, have failed to bring an end to the year-long conflict in the Middle East, tempering investors’ appetite for perceived riskier assets.
- Traders now look to the release of the US Existing Home Sales for some impetus, though the focus remains on Tokyo consumer inflation data due on Friday.
- The crucial report will play a key role in influencing the JPY ahead of Japan’s general election on October 27 and the BoJ policy meeting on October 31.
Technical Outlook: USD/JPY seems poised to prolong its appreciating move, 100-day SMA breakout in play
From a technical perspective, the overnight breakout above the 100-day Simple Moving Average (SMA) was seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart are holding comfortably in positive territory and support prospects for additional gains towards the 152.00 mark. Some follow-through buying should pave the way for an extension of the recent well-established uptrend witnessed over the past month or so. That said,
That said, the Relative Strength Index (RSI) on the daily chart has moved on the verge of breaking into overbought territory and warrants some caution for aggressive bullish traders. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for any further appreciation.
On the flip side, any meaningful corrective slide now seems to find some support near the 151.20-151.15 region ahead of the 151.00 mark. A further decline could be seen as a buying opportunity, which, in turn, should help limit the downside for the USD/JPY pair near the 150.60 area. The latter should act as a key pivotal point, below which spot prices could accelerate the fall towards the 150.00 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.
