- USD/JPY lost momentum around the 155.75i range in early Asian trading on Thursday, down 0.30% from the previous day.
- Japan’s exports increased for the seventh consecutive month in June.
- The growing likelihood of a US interest rate cut and a dovish message from the Fed is likely to cap the upside for this currency pair.
During early Asian trading on Thursday, the USD/JPY pair saw selling around the 155.75 level. The pair was slightly lower due to a general weakening of the US Dollar (USD) and speculation that the Bank of Japan (BoJ) may intervene. Thursday sees the release of US weekly new jobless claims and the Philadelphia Fed manufacturing index, as well as a speech from Federal Reserve Chairman Laurie Logan.
Traders expect Japanese authorities to intervene again in foreign exchange (FX) markets to shore up the Japanese yen (JPY), which is at its lowest in decades, which could support the yen in the short term and limit any gains in the currency pair.
Japan’s trade balance for the year to June rose to 224 billion yen from -1.22 trillion yen a year earlier, beating expectations, according to data released by the Ministry of Finance on Thursday. Meanwhile, the country’s exports rose 5.4% year-on-year in June after rising 13.5% in May, below the 6.4% forecast. Imports rose 3.2% from a previous 9.5% increase, below the market consensus of 9.3%.
As for the USD, the market sees a low probability of at least a 25 basis points (bps) rate cut at the July Fed meeting, but sees a September rate cut as 100% likely, according to the CME FedWatch tool. The USD is under selling pressure against the JPY due to rising expectations of a Fed rate cut.
Moreover, dovish views on the Fed in the near term continue to drag the dollar down. Fed Governor Christopher Waller said on Wednesday that the U.S. central bank is “close” to cutting interest rates, while Richmond Fed President Thomas Barkin said easing inflation is starting to spread and he wants to see that continue.
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 bonds 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.
