Japanese Yen touches over one-week low against USD; lacks follow-through selling
- The Japanese Yen slides to over one-week trough against its American counterpart on Tuesday.
- Doubts over BoJ’s ability to hike rates further turn out to be a key factor undermining the JPY.
- Bets for a less dovish Fed acts as a tailwind for the USD and contributes to the modest uptick.
The Japanese Yen (JPY) loses ground against its American counterpart for the second consecutive day on Tuesday and lifts the USD/JPY pair to over a one-week high, above mid-151.00s during the Asian session on Tuesday. The uncertainty over how soon the Bank of Japan (BoJ) could raise interest rates again keeps the JPY bulls on the defensive. Furthermore, the overnight bounce in the US Treasury bond yields from October lows undermines the lower-yielding JPY. Apart from this, the post-NFP US Dollar (USD) recovery from a nearly one-month trough, bolstered by expectations for a less dovish Federal Reserve (Fed), acts as a tailwind for the currency pair.
That said, a softer risk tone, concerns that US President-elect Donald Trump's tariff plans could trigger a second wave of global trade wars and geopolitical tensions help limit deeper losses for the safe-haven JPY. Traders might also refrain from placing aggressive bullish bets around the USD/JPY pair and opt to wait for the release of the latest US consumer inflation figures, due on Wednesday. The crucial US Consumer Price Index (CPI) report will be looked upon for fresh cues about the Fed's rate-cut path. This, in turn, will drive the USD demand and provide some meaningful impetus to the currency pair ahead of the key central bank event risks next week.
Japanese Yen continues losing ground amid mixed BoJ rate hike cues
- Bank of Japan Governor Kazuo Ueda recently said that the timing of the next rate hike was approaching. This, along with data showing that the underlying inflation in Japan remains solid, lifted bets that the BoJ will hike rates at its December 18-19 policy meeting.
- Some media reports, however, suggested the BoJ may skip a rate hike this month. Moreover, BoJ's dovish board member Toyoaki Nakamura said that the central bank must move cautiously in raising rates, adding a layer of uncertainty and undermining the Japanese Yen.
- The US Nonfarm Payrolls (NFP) report released on Friday reaffirmed bets for a rate cut by the Federal Reserve in December. The Fed, however, could deliver a cautious message amid expectations that US President-elect Donald Trump's policies could reignite inflationary pressures.
- The yield on the benchmark 10-year US government bond staged a modest bounce on Monday, after closing at its lowest level since October 18 last Friday. This assists the US Dollar (USD) build on the post-NFP recovery and provides a modest lift to the USD/JPY pair.
- Investors remain concerned about Trump's impending trade tariffs and their effect on the global economic outlook. Moreover, turbulence in the Middle East increased over the weekend after Syrian rebels took control, forcing President Bashar al-Assad to flee to Russia.
- This week’s main event will be Wednesday’s release of the US Consumer Price Index for November, which should offer cues about the interest rate outlook in the US. This, in turn, should influence the currency pair ahead of the FOMC/BoJ policy meetings next week.
USD/JPY could face stiff resistance near the 151.75-152.00 confluence
From a technical perspective, any subsequent move up is more likely to confront stiff resistance and remain capped near the 151.75-152.00 confluence. The said area comprises the 38.2% Fibonacci retracement level of the recent pullback from a multi-month high touched in November and the very important 200-day Simple Moving Average (SMA). Given that oscillators on the daily chart have recovered from negative territory, a sustained move beyond the 152.00 mark should pave the way for additional gains towards the 152.70-152.75 region, or the 50% retracement level. This is followed by the 153.00 round figure, above which the USD/JPY pair could extend the momentum towards the 61.8% Fibo. level, around the 153.70 area.
On the flip side, weakness below the 151.00 mark now seems to find decent support near the 150.60 region, or the 23.6% Fibo. level resistance breakpoint. The next relevant support is pegged near the 150.00 psychological mark, below which the USD/JPY pair could weaken to the 149.50-149.45 region en route to the 149.00 mark and the monthly low, around the 148.65 area touched last week. The latter coincides with the 100-day SMA and a convincing break below will be seen as a fresh trigger for bearish traders, and set the stage for a further near-term depreciating move.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.