- The Japanese yen continues to fall amid uncertainty about the Bank of Japan's interest rate hike.
- The USD bullishness is helping the USD/JPY pair rally to the top for the first time in months.
- Yen bears are ignoring the possibility of intervention by Japanese authorities.
The Japanese yen (JPY) has been underperforming against the US yen for four consecutive sessions as of Thursday, falling to its lowest since July 24 in Asian trading. Japan's producer price index (PPI) rose at its fastest annual pace in more than a year in October, but investors remain confident that domestic political uncertainty will make it difficult for the Bank of Japan (BOJ) to raise interest rates again. It seems like it is. Separately, growing concerns about the possibility that US President-elect Donald Trump will impose high tariffs and the impact it will have on Japan's economy continue to weigh on the yen.
Meanwhile, U.S. Treasury yields have risen near multi-month highs on hopes that the incoming Trump administration's expansionary policies could stimulate inflation, which could further undermine the low-yielding yen. It seems that there is. In addition to this, the continuation of the so-called Trump trade has pushed the US dollar (USD) to its highest level since November 2023, providing a tailwind for the USD/JPY pair. That said, concerns about intervention could limit the yen's losses. In addition, there are also expectations that the Federal Reserve will cut interest rates by another 25 basis points (bps) in December, supported by Wednesday's US inflation data, which could put a cap on the market. There is.
Japanese yen selling remains unabated amid doubts about the Bank of Japan's interest rate hike plans and persistent US dollar buying
- Japan's wholesale inflation rate rose in October, complicating the Bank of Japan's (BOJ) decision on the timing of a potential interest rate hike, amid heightened concerns about the domestic economy.
- The Japanese government is reportedly preparing to draw up a supplementary budget to support low-income households and fund economic stimulus measures to offset rising prices.
- Masato Kanda, currently a special assistant to Prime Minister Shigeru Ishiba, said authorities will take appropriate action against excessive movements in the foreign exchange market.
- The U.S. Bureau of Labor Statistics reported Wednesday that the composite U.S. Consumer Price Index (CPI) rose 0.2% in October and has risen 2.6% over the past 12 months.
- Meanwhile, core CPI, which excludes the more volatile food and energy categories, rose 3.3% compared to the same period last year.
- The data did not change expectations that the U.S. Federal Reserve will cut interest rates for a third time in December due to a weakening labor market.
- The continuation of the so-called Trump trade has pushed U.S. Treasury yields near a four-month peak and pushed the dollar to a new year-to-date high.
- Traders are now looking to the regular US weekly new jobless claims and US Producer Price Index (PPI) releases for near-term opportunities.
- The focus then shifts to Fed Chairman Jerome Powell's speech, which should influence the USD/JPY pair ahead of preliminary third-quarter GDP figures to be released from Japan on Friday.
USD/JPY could rise further towards the next relevant hurdle around 156.55-156.60
From a technical perspective, the recent breakout of the 61.8% Fibonacci retracement level of the July-September decline and subsequent close above the psychological mark of 155.00 on Wednesday favors bullish traders. There is. Moreover, the oscillator on the daily chart remains comfortably in positive territory and has not entered the overbought zone yet. This suggests that the path of least resistance remains to the upside for the USD/JPY pair. Therefore, follow-through strength above the 156.00 mark looks like a distinct possibility to test the next related hurdle around 156.55-156.60. The upward trajectory is likely to extend further towards the 157.00 round figure on its way to the 157.30-157.35 supply zone.
On the contrary, the Asian session lows around 155.35-155.30 now appear to be protecting the near-term downside ahead of the 155.00 mark. A sustained break below the latter could prompt a technical sell-off and drag the USD/JPY pair to the intermediate support at 154.55-154.50 on its way to the 154.00 round figure and support at 153.80. This is followed by support near 153.45, and a decisive break of this could shift the short-term bias in favor of bearish traders.
Frequently asked questions about the Japanese Yen
The Japanese Yen (JPY) is one of the most traded currencies in the world. Its value is determined broadly by trends in Japan's economy, but more specifically by factors such as the Bank of Japan's policies, the difference in Japanese and U.S. bond yields, and traders' risk sentiment.
One of the Bank of Japan's duties is exchange control, so its trends are key to the yen. The Bank of Japan occasionally intervenes directly in currency markets, generally to devalue the yen, but does not do so frequently due to political concerns in major trading partners. The Bank of Japan's ultra-easy policy from 2013 to 2024 widened the policy divergence between the Bank of Japan and other major central banks, causing the yen to weaken against major currencies. Recently, the gradual easing of this ultra-easy policy has provided some support to the yen.
Over the past decade, the Bank of Japan's commitment to ultra-easy monetary policy has widened its policy divergence from that of other central banks, particularly the US Federal Reserve. This confirmed the widening gap between US 10-year bonds and Japan's 10-year bonds, which favored the US dollar against the Japanese yen. The gap is narrowing with the Bank of Japan's decision to gradually abandon its ultra-easy policy in 2024, coupled with interest rate cuts by other major central banks.
The Japanese Yen is often considered a safe investment. This means that when markets are under stress, investors are more likely to put money into the Japanese currency, which is expected to be reliable and stable. Times of turmoil are likely to increase the value of the yen against other currencies that are considered riskier investments.
