- Japanese Yen draws support from BOJ rate hiking beds and global flights to safety.
- Trade jitter and escalating geopolitical tensions continue to benefit safe in-home assets.
- The expectations provided by the forked BOJ apply downward pressure to the USD/JPY pair.
The Japanese Yen (JPY) gained aggressive traction for the second day in a row on Thursday, further apart from the two-week lows that touched the US counterpart the day before. Investors seem to be convinced that strong wage growth is now increasing consumer spending, contributing to rising inflation, and giving the Bank of Japan (BOJ) room for interest this year. This was a key factor behind the recent narrowing of rate differences between Japan and other countries.
Separately, US President Donald Trump's uncertainty about trade policies and geopolitical risks caused by ongoing conflict in the Middle East has proven to be another factor supporting safe Haven JPY. Meanwhile, the US dollar (USD) is suffering near the low and lows of months mentioned earlier this week amid the prospects for further policy easing by the Federal Reserve. This creates additional downward pressure on the USD/JPY pair, contributing to daytime slides approaching the 148.00 round figure mark.
The Japanese Yen is supported by the expectations of Hawkishboji and the demand for sustainable safe shelters
- At the end of the two-day review meeting on Wednesday, the Bank of Japan decided to stabilize the key policy rates, noting the high uncertainty surrounding the Japanese economy.
- In the post-meeting presser, BOJ Governor Huadang said that central banks want to implement their policies before it's too late and that achieving a 2% inflation target is important for long-term reliability.
- As widely expected, the Federal Reserve also showed that it would likely hold interest rates at its second meeting and implement a 25 basis points interest rate cut by the end of the year.
- Meanwhile, policymakers cut their growth forecast for the year amid growing uncertainty over the impact of President Donald Trump's aggressive trade policies on economic activity.
- Furthermore, the Fed gave it a higher bump in its inflation forecast. However, traders confirmed at their policy meeting in June that the US Central Bank is at least 65% likely to resume its fee reduction cycle.
- Ukrainian President Voldymir Zelensky and Trump agreed to cooperate in ending the Russian-Ukraine war. However, Russian President Vladimir Putin proposed a proposed 30-day ceasefire.
- Israeli forces said they began a limited ground invasion into Gaza the day after the air bombing of the strip that smashed a two-month ceasefire with Hamas.
- Israeli Prime Minister Benjamin Netanyahu warned of the fierce war, raising the risk of further escalation of tensions in the Middle East, and benefiting secure inventory assets, including the Japanese yen.
USD/JPY appears to be vulnerable to further slides. The bear is waiting for a sustained break below the 148.00 mark
From a technical standpoint, the unacceptable overnight failure and subsequent decline beyond the psychological mark of 150.00 suggests that the recent months of bouncing off the low pressure system have exhausted steam. Additionally, negative oscillators on the daily chart support further depreciation movements of USD/JPY pairs. Therefore, the weakness of follow-throughs below 148.00 mark appears to be a clear possibility towards the next related support, close to the horizontal support of 147.75. The downward trajectory can be further expanded towards the 147.30 area on the way to the 147.00 round figure and the 146.55-146.50 area. Or, earlier this month, it's the lowest level since early October.
Conversely, attempts to recover could face immediate hurdles near Asian sessions, just before the 149.00 mark. This is followed by a supply zone of 149.25-149.30, with the USD/JPY pair aiming to retrieve the 150.00 mark. It could encourage a rise in spot prices to the 150.60 mid-150.60 barrier on the way to the 151.00 mark and monthly peaks, past the overnight swing high around the 150.15 region.
Bank of Japan FAQ
The Bank of Japan (BOJ) is the central bank of Japan and has established monetary policy in this country. Its mission is to issue banknotes and implement currency and financial management to ensure price stability. This means an inflation target of around 2%.
The Bank of Japan embarked on a Ultra Loose Money Policy in 2013 to stimulate economic and fuel inflation in a low expansion environment. Bank policies are based on quantitative and qualitative easing (QQE) or printing notes to purchase assets such as governments and corporate bonds to provide liquidity. In 2016, the banks first introduced negative interest rates and then doubled their strategy and relaxed further by directly managing government bond yields for the next decade. In March 2024, BOJ raised interest rates and effectively retreated from a very loose monetary policy stance.
Due to a large bank stimulus, the yen was depreciated from its major currency peers. This process worsened in 2022 and 2023 due to increased policy differences between the Bank of Japan and other major central banks. BOJ's policy has reduced the yen's value as the gap between its currencies widened. This trend was partially reversed in 2024 when BOJ decided to abandon its ultra-loose policy stance.
The weak yen and the surge in global energy prices have led to Japan's inflation rising, surpassing the BOJ's 2% target. The outlook for an increase in the country's salary, an important factor in promoting inflation, also contributed to the movement.
