- The Japanese yen has strengthened as traders expect the Bank of Japan to raise interest rates further in the near future.
- Machinery orders in Japan rose 2.1% in June from the previous month, beating expectations of a 1.1% increase.
- The US dollar weakened as dovish comments from the Federal Reserve increased the likelihood of a rate cut in September.
The Japanese Yen (JPY) strengthened against the US Dollar (USD) for the second consecutive day following a hawkish outlook for the Bank of Japan (BoJ). Recent data showing Japan’s second quarter GDP growth supports the possibility of the BoJ raising interest rates in the near future.
Japanese machinery orders, a leading indicator of capital investment, rose 2.1% month-on-month in June, beating the 1.1% increase expected. Markets are focused on Japan’s inflation figures due to be released later this week for further insight into the direction of the Bank of Japan’s monetary policy.
The US dollar continues to weaken following dovish comments from Federal Reserve officials, raising expectations that the US central bank will cut interest rates in September, while US economic data released last week showed that both the Producer Price Index (PPI) and Consumer Price Index (CPI) pointed to moderating inflation.
San Francisco Federal Reserve Bank President Mary Daly stressed on Sunday that the U.S. central bank should take a gradual approach to lowering borrowing costs, according to the Financial Times, while Chicago Federal Reserve Bank President Austen Goolsby warned that central bankers should be careful about keeping monetary policy tight for longer than necessary.
Daily Digest Market Trends: Yen strengthens due to hawkish Bank of Japan policy
- On Friday, U.S. housing starts fell 6.8% to 1.238 million units in July after rising 1.1% in June, while the University of Michigan’s consumer confidence index rose to 67.8 in August, the first increase in five months and beating expectations and up from 66.4 in July.
- The U.S. Census Bureau reported Thursday that U.S. retail sales rose 1.0% month-over-month in July, a sharp turnaround from a 0.2% decline in June and above the expected 0.3% increase. Additionally, initial jobless claims for the week ending August 9 were 227,000, below the expected 235,000 and down from 234,000 the previous week.
- Japan’s economy is expected to recover gradually as wages and incomes improve, Yoshitaka Shindo, the country’s minister of economy, trade and industry, said on Thursday, adding that the government would work closely with the Bank of Japan to implement flexible macroeconomic policies.
- Japan’s gross domestic product (GDP) grew 0.8% quarter-on-quarter in the second quarter, beating market expectations of 0.5% and recovering from a 0.6% contraction in the first quarter. This was the strongest quarterly growth since the first quarter of 2023. Meanwhile, annualized GDP growth reached 3.1%, beating the market consensus of 2.1% and reversing a 2.3% contraction in the first quarter. This was the strongest annual expansion since the second quarter of 2023.
- The U.S. headline consumer price index (CPI) rose 2.9% year-on-year in July, down slightly from June’s 3% increase and below market expectations. Core CPI, which excludes food and energy, rose 3.2% year-on-year, down slightly from June’s 3.3% increase but in line with market expectations.
- Jane Foley, senior FX strategist at Rabobank, said a flurry of US data this week and the Jackson Hole meeting next week will give the market a clearer insight into the potential response from US policymakers, but their main expectation is that the Fed will likely cut interest rates by 25 basis points in September and further by the end of the year.
Technical reasons: USD/JPY drops to the 146.50 area
USD/JPY is trading around 146.40 on Monday. Daily chart analysis shows that the pair is slightly below the 9-day Exponential Moving Average (EMA), indicating a short-term bearish trend. Moreover, the 14-day Relative Strength Index (RSI) is below 50, confirming the bearish momentum.
As for support levels, the USD/JPY pair may test the seven-month low of around 141.69, recorded on August 5. A further decline could see the pair heading towards the next “throwback support” level at 140.25.
On the upside, the USD/JPY pair might face an immediate barrier at the 9-day exponential moving average (EMA) around 147.60. A break above this level could see the pair target the 50-day EMA at 152.78 but might test the resistance level at 154.50 which has shifted from a previous throwback support to a current pullback resistance.
USD/JPY: Daily Chart
Today’s Japanese Yen Price
The table below shows the percentage change of the Japanese Yen (JPY) against the major listed currencies today. The Japanese Yen was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | Australian Dollar | NZD | Swiss Franc | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.12% | -0.07% | -0.82% | -0.13% | -0.31% | -0.55% | -0.09% | |
| EUR | 0.12% | -0.03% | -0.65% | -0.01% | -0.29% | -0.60% | -0.01% | |
| GBP | 0.07% | 0.03% | -0.78% | -0.02% | -0.26% | -0.50% | 0.03% | |
| JPY | 0.82% | 0.65% | 0.78% | 0.62% | 0.46% | 0.38% | 0.58% | |
| CAD | 0.13% | 0.01% | 0.02% | -0.62% | -0.21% | -0.35% | 0.00% | |
| Australian Dollar | 0.31% | 0.29% | 0.26% | -0.46% | 0.21% | -0.16% | 0.29% | |
| NZD | 0.55% | 0.60% | 0.50% | -0.38% | 0.35% | 0.16% | 0.48% | |
| Swiss Franc | 0.09% | 0.00% | -0.03% | -0.58% | -0.01% | -0.29% | -0.48% |
The heat map displays the percentage change between major currencies. The base currency is selected from the left column and the quote currency is selected from the top row. For example, if you select Japanese Yen from the left column and move it along the horizontal line to US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
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 the performance of the Japanese economy, but more specifically by factors such as the Bank of Japan’s policies, the spread between Japanese and US bond yields, and traders’ risk sentiment.
The Bank of Japan’s movements are important for the yen, since one of its mandates is currency management. The BOJ would typically intervene directly in the currency market to weaken the yen, but often refrains from doing so due to political concerns with major trading partners. The BOJ’s current ultra-loose monetary policy, based on a massive economic stimulus package, has caused the yen to weaken against major currencies. This process has worsened in recent days due to the widening divergence between the BOJ’s and other major central banks’ policies, which have chosen to significantly raise interest rates to combat inflation at its highest in decades.
The Bank of Japan’s insistence on ultra-loose monetary policy has led to a growing divergence in policy with other central banks, particularly the U.S. Federal Reserve, which has helped to widen the gap between 10-year U.S. Treasury notes and Japanese government bonds, giving the U.S. dollar an edge over the Japanese yen.
The Japanese Yen is often seen as a safe investment, meaning that during times of market turmoil, investors are more likely to put their money into the Japanese Yen due to its reliability and stability. In times of volatility, the yen tends to rise in value against other currencies that are considered riskier investments.
