- The Japanese Yen recovers slightly against the USD, though the upside potential seems limited.
- Trump-related tariff fears and elevated US bond yields could undermine the lower-yielding JPY.
- Traders now look to speeches by Fed officials and key economic data releases for a fresh impetus.
The Japanese Yen (JPY) reverses an Asian session dip to sub-154.00 levels against its American counterpart, though it lacks any follow-through buying amid the uncertainty over the Bank of Japan’s (BoJ) rate-hike plan. A fragile minority government in Japan is expected to make it difficult for the central bank to tighten its monetary policy. Moreover, the BoJ Summary of Opinions from the October meeting revealed that policymakers were split on whether to raise interest rates again.
This, along with concerns about the return of President-elect Donald Trump’s tariffs, could undermine the JPY. Meanwhile, Trump’s expansionary policies could put upward pressure on inflation and limit the Federal Reserve’s (Fed) scope to ease policy. The outlook remains supportive of elevated US Treasury bond yields, which assist the US Dollar (USD) to stand tall near its highest level since early July and should contribute to capping the upside for the lower-yielding JPY.
Japanese Yen struggles to gain any meaningful traction amid BoJ uncertainty, bullish USD
- Japan’s political landscape raised doubts about the Bank of Japan’s ability to hike interest rates again and the speculations were further fueled by the Summary of Opinions from the October meeting released on Monday.
- According to Kyodo News, Japanese Prime Minister Shigeru Ishiba is arranging his first summit with Chinese President Xi Jinping on the sidelines of the Asia-Pacific Economic Cooperation forum summit in mid-November.
- Japanese PM Ishiba said on Monday that the government planned to meet with business and labor union representatives later this month to discuss next year’s annual wage negotiations.
- The tariffs promised by US President-elect Donald Trump could strain Japanese firms, which export heavily to the US, and potentially impact economic growth, creating another hurdle for the BoJ’s rate-hike plans.
- Minneapolis Fed President Neel Kashkari said on Sunday that the central bank wants to have confidence and needs to see more evidence that inflation will go back to the 2% target before deciding on further interest rate cuts.
- Investors now seem convinced that Trump’s expected policy measures would spur economic growth and boost inflation, restricting the Federal Reserve from easing its monetary policy more aggressively.
- The US Treasury bond yields hold steady below the post-US election swing high and the US Dollar remains close to its highest level since early July touched on Monday, offering some support to the USD/JPY pair.
- A slew of influential FOMC members are scheduled to speak this week, including Fed Chair Jerome Powell, which, along with the US consumer inflation figures, should offer cues about the US central bank’s rate-cut path.
- This week’s economic docket also features the release of the Prelim Q3 GDP print from Japan and the US monthly Retail Sales figures on Friday, which might contribute to providing a fresh impetus to the USD/JPY pair.
Technical Outlook: USD/JPY dips towards the 153.00 mark could be seen as a buying opportunity
From a technical perspective, the recent breakout above the 200-day Simple Moving Average (SMA) and the overnight close above the 61.8% Fibonacci retracement level of the July-September downfall favors bullish traders. Moreover, oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone, validating the near-term positive outlook for the USD/JPY pair. Hence, a subsequent move up back towards challenging a multi-month top, around the 154.70 area, looks like a distinct possibility. This is closely followed by the 155.00 psychological mark, above which spot prices could accelerate the momentum towards the 155.65-155.70 intermediate resistance en route to the 156.00 round figure.
On the flip side, the 61.8% Fibo. resistance breakpoint, around the 153.35 region, now seems to protect the immediate downside ahead of the 153.00 mark and the 152.70-152.65 horizontal support. Any further corrective decline might still be seen as a buying opportunity near the 152.00 mark and remain limited near the 200-day SMA. The latter is currently pegged around the 151.75 region and is followed by last week’s swing low, around the 151.25 area. A convincing break below the latter might prompt some technical selling and drag the USD/JPY pair further below the 151.00 round figure, towards the 150.35-150.30 intermediate support en route to the 150.00 psychological mark.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
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