- The Japanese Yen attracts some sellers on Tuesday, though it lacks follow-through.
- Rising bets for another BoJ rate hike in December help limit the downside for the JPY.
- Geopolitical risks, Trump’s tariff threats and suppressed US bond yields favor JPY bulls.
The Japanese Yen (JPY) edges lower against its American counterpart during the Asian session on Tuesday and pushes the USD/JPY pair away from the lowest level since October 16 touched the previous day. However, speculations that the Bank of Japan (BoJ) could hike interest rates again in December should limit any meaningful JPY depreciation. Apart from this, US President-elect Donald Trump’s looming trade tariff threats, along with persistent geopolitical risks, might underpin the safe-haven JPY.
Meanwhile, the recent decline in the US Treasury bond yields fails to assist the US Dollar (USD) to build on the overnight bounce from a multi-month low and could further offer support to the lower-yielding JPY. This, in turn, warrants some caution before placing aggressive bullish bets around the USD/JPY pair. Moreover, traders might also opt to wait for more cues about the Federal Reserve’s (Fed) rate-cut path. Hence, this week’s crucial US macro data will drive the USD and provide a fresh impetus to the currency pair.
Japanese Yen bulls have the upper hand amid December BoJ rate hike bets
- Tokyo November Consumer Price Index (CPI) released last week suggested that the underlying inflation is gaining momentum and lifted expectations for a December rate hike by the Bank of Japan.
- BoJ Governor Kazuo Ueda said on Saturday that the central bank will adjust the degree of monetary easing at the appropriate time if it becomes confident that the underlying inflation rises toward 2%.
- Russia fires at least 60 North Korean missiles against Ukraine. North Korean leader Kim Jong Un vowed that his country will invariably support Moscow until Russia achieves a great victory in Ukraine.
- US President-elect Donald Trump has pledged to impose big tariffs against America’s three biggest trading partners and ‘BRICS’ nations, raising the risk of a second wave of a global trade war.
- Investors remain concerned that Trump’s tariff plans and expansionary policies will reignite inflationary pressures and force the Federal Reserve to stop cutting rates or possibly raise them again.
- The Institute of Supply Management’s (ISM) Manufacturing Purchasing Managers Index (PMI) rose to 48.4 in November amid hopes of business-friendly policies from the Trump administration.
- According to the CME Group’s FedWatch Tool, traders are currently pricing in a nearly 75% chance that the US central bank will lower borrowing costs again by 25 basis points later this month.
- The benchmark 10-year US Treasury bond yield had fallen to its lowest levels since late October, narrowing the US-Japan yield differential, which should also benefit the lower-yielding Japanese Yen.
- Investors keenly await important US macro releases scheduled at the beginning of a new month for more cues about the Fed’s future rate-cut path, which will influence the USD and the USD/JPY pair.
USD/JPY could attract fresh sellers at higher levels and remain capped near 151.00
From a technical perspective, last week’s breakdown below the 38.2% Fibonacci retracement level of the September-November rally could be seen as a fresh trigger for bearish traders. Moreover, oscillators on the daily chart are holding deep in negative territory and are still away from being in the oversold zone, suggesting that the path of least resistance for the USD/JPY pair remains to the downside. That said, a modest bounce from the 100-day Simple Moving Average (SMA) support, currently pegged near the 149.00 mark, warrants some caution before positioning for deeper losses. A convincing break below the said handle should pave the way for a slide towards the 50% retracement level, around the 148.20 region en route to the 148.00 mark. Some follow-through selling might expose the 61.8% Fibo. level, around the 147.00 round figure, with some intermediate support near the 147.35 area.
On the flip side, a further strength beyond the 150.00 psychological mark now seems to confront stiff resistance near the overnight swing high, around the 150.75 region, ahead of the 151.00 round figure. A sustained strength beyond the latter might trigger a short-covering rally and lift the USD/JPY pair to the 151.65 region en route to the 152.00 mark. The latter represents the very important 200-day Simple Moving Average (SMA) and should act as a key pivotal point, which if cleared decisively will suggest that the recent corrective pullback from a multi-month top has run its course. This, in turn, would shift the near-term bias back in favor of bullish traders.
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.
Read the full article here
