- The Japanese Yen attracts some haven flows on Tuesday, albeit lacking follow-through.
- The BoJ rate-hike uncertainty acts as a headwind for the JPY amid renewed USD buying.
- A fresh leg up in the US bond yields also contributes to capping the lower-yielding JPY.
The Japanese Yen (JPY) edges higher against its American counterpart during the Asian session on Tuesday, albeit lacking bullish conviction and remains confined in a familiar range held over the past week or so. A slight deterioration in the risk sentiment – as depicted by a weaker tone around the equity markets – offers some support to the safe-haven JPY. That said, the heightened uncertainty over the timing of the next rate hike by the Bank of Japan (BoJ) might continue to cap any meaningful appreciating move for the JPY.
Meanwhile, Scott Bessent’s nomination as the US Treasury secretary provided a short-lived respite to US bond investors amid expectations for a less dovish Federal Reserve (Fed). In fact, market players now seem convinced that US President-elect Donald Trump’s expansionary policies will reignite inflation and force the Fed to cut interest rates slowly. This, in turn, triggers a fresh leg up in the US Treasury bond yields, which assist the US Dollar (USD) in filling the weekly bearish gap and should cap the lower-yielding JPY.
Japanese Yen struggles to lure buyers amid doubts over BoJ’s ability to hike rates further
- Data published by the Bank of Japan this Tuesday showed that the Services Producer Price Index (PPI) rose 2.9% YoY in October as compared to 2.6% in the previous month.
- This comes after last week’s stronger consumer inflation figures from Japan and BoJ Governor Kazuo Ueda’s hawkish remarks and keeps the door open for a December rate hike.
- BoJ Governor Kazuo Ueda has stressed the bank’s readiness to raise interest rates again if inflation becomes driven more by robust domestic demand and higher wages.
- Meanwhile, investors have been scaling back their bets for another 25-basis-points rate by the BoJ in December in the wake of increased domestic political uncertainty.
- US President-elect Donald Trump said that he will charge Mexico and Canada a 25% tariff on all products coming into the US and will charge China an additional 10% tariff.
- Concerns about the economic impact of increased duties temper investors’ appetite for riskier assets and drive some haven flows towards the Japanese Yen on Tuesday.
- The yield on the benchmark 10-year US government bond fell by the most since early August on Monday in response to Scott Bessent’s nomination as the US Treasury secretary.
- Chicago Fed President Austan Goolsbee said on Monday that barring some convincing evidence of overheating, he foresees the central bank continuing to lower rates.
- Separately, Minneapolis Fed President Neel Kashkari said that it is still appropriate to consider another interest-rate reduction at the December FOMC policy meeting.
- Traders have been paring back their expectations for an interest-rate cut by the Federal Reserve in December amid concerns that Trump’s policies could boost inflation.
- The US Dollar regains positive traction following the previous day’s slide amid a fresh leg up in the US bond yields, which, in turn, should cap the lower-yielding JPY.
- Traders now look forward to the release of the FOMC meeting minutes for cues about the future rate-cut path and determining the near-term trajectory for the Greenback.
- This week’s US economic docket also features the first revision of the US Q3 GDP print and the US Personal Consumption and Expenditure (PCE) price Index.
USD/JPY bears need to wait for some follow-through selling below 153.30-153.25 support
The USD/JPY pair has been consolidating near the 100-period Simple Moving Average (SMA) on the 4-hour chart. Moreover, mixed oscillators on daily and hourly charts make it prudent to wait for some follow-through selling below last week’s swing low, around the 153.30-153.25 region, before positioning for any further losses. Spot prices might then weaken further below the 153.00 mark, towards the next relevant support near mid-152.00s en route to the very important 200-day SMA, currently around the 152.00 mark.
On the flip side, the 154.75-154.80 area now seems to have emerged as an immediate strong barrier. A sustained move beyond, leading to a subsequent strength above the 155.00 psychological mark, could lift the USD/JPY pair to the 155.40-155.50 supply zone. The momentum could extend further towards reclaiming the 156.00 mark before spot prices aim to retest the multi-month top, around the 156.75 region touched on November 15.
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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