- USD/JPY reached a peak on Wednesday but is still under 148.50.
- Market sentiment and the outlook for Fed rate cuts are key drivers of U.S. dollar movement.
- US ADP job figures will be released on Thursday.
On Wednesday, USD/JPY encountered resistance near the 148.00 mark while continuing to hover below the 200-day exponential moving average (EMA) around 148.22. The pair briefly climbed to a five-week high of 149.14, but traders are finding it difficult to sustain momentum ahead of the significant non-farm payroll (NFP) report set for Friday.
This Thursday, the US ADP employment change data for August and the latest ISM Purchasing Manager Index (PMI) will hit the market. The relationship between ADP data and the forthcoming official NFP figures tends to be somewhat shaky, as ADP has historically underperformed in predicting the final NFP number. Still, investors usually keep an eye on the preliminary ADP figures for any unexpected shifts. Meanwhile, the ISM services PMI is expected to indicate an improved economic outlook for businesses as the fourth quarter approaches.
All data leads to NFP
The NFP releases are always significant, but this week’s employment data will carry extra weight. The market anticipates interest rate cuts from the Federal Reserve this month, with many hoping that Fed policymakers will take into account recent inflation trends and consider a quarter-point rate drop on September 17th, amid signs of weakness in US labor data.
USD/JPY Daily Chart
Japanese Yen Questions
The Japanese Yen (JPY) is one of the most widely traded currencies globally. Its valuation is primarily influenced by the Japanese economy’s performance, the Bank of Japan’s policies, and the bond yield differences between Japan and the US, along with trader sentiment.
One of the key roles of the Bank of Japan is to regulate currency, which makes its actions crucial for the yen’s value. Although the BOJ generally intervenes in the currency market to curb the yen’s depreciation, frequent interventions are avoided due to political sensitivities with major trading partners. The ultra-loose monetary policy from 2013 to 2024 created a significant disparity between Japan’s monetary stance and that of other major central banks, leading to a depreciation of the yen against other currencies. Recently, the yen has seen some support as the BOJ starts to unwind this ultra-loose policy.
Over the last decade, the BOJ’s commitment to ultra-loose monetary policy has increased the divergence between its stance and that of other central banks, especially the US Federal Reserve. This divergence has supported the widening gap between US and Japanese bond yields since 2010, fostering a stronger US dollar relative to the yen. The BOJ’s actions in 2024, combined with interest cuts from other significant central banks, may narrow this gap.
The Japanese yen is often regarded as a stable investment choice. In times of market stress, investors tend to flock to the yen for its reliability, which may strengthen its value compared to riskier currencies.
