- The Japanese Yen continues with its underperformance amid the BoJ rate-hike uncertainty.
- Trump-related tariff fears and elevated US bond yields also undermine the lower-yielding JPY.
- Traders look to speeches by Fed officials and key economic data releases for a fresh impetus.
The Japanese Yen (JPY) remains on the back foot against its American counterpart during the Asian session on Tuesday and seems vulnerable to weaken further. A fragile minority government in Japan is expected to make it difficult for the Bank of Japan (BoJ) to tighten its monetary policy. Moreover, the BoJ Summary of Opinions from the October meeting revealed that policymakers were split on whether to raise interest rates again. This, along with concerns about the return of President-elect Donald Trump’s tariffs, underpins the JPY.
Meanwhile, Trump’s expansionary policies and corporate tax cuts should put upward pressure on inflation, which could limit the Federal Reserve’s (Fed) scope to ease policy. This, in turn, remains supportive of elevated US Treasury bond yields and validates the near-term negative outlook for the lower-yielding JPY. The US Dollar (USD), on the other hand, preserves the positive trend that followed Trump’s victory in the US presidential election and suggests that the path of least resistance for the USD/JPY pair remains to the upside.
Japanese Yen is pressured by the uncertainty surrounding the BoJ’s rate-hike path
- Japan’s political landscape raised doubts about the Bank of Japan’s ability to hike interest rates again and the speculations were further fueled by the Summary of Opinions from the October meeting released on Monday.
- According to Kyodo News, Japanese Prime Minister Shigeru Ishiba is arranging his first summit with Chinese President Xi Jinping on the sidelines of the Asia-Pacific Economic Cooperation forum summit in mid-November.
- Japanese PM Ishiba said on Monday that the government planned to meet with business and labor union representatives later this month to discuss next year’s annual wage negotiations.
- The tariffs promised by US President-elect Donald Trump could strain Japanese firms, which export heavily to the US, and potentially impact economic growth, creating another hurdle for the BoJ’s rate-hike plans.
- Minneapolis Fed President Neel Kashkari said on Sunday that the central bank wants to have confidence and needs to see more evidence that inflation will go back to the 2% target before deciding on further interest rate cuts.
- Investors now seem convinced that Trump’s expected policy measures would spur economic growth and boost inflation, restricting the Federal Reserve from easing its monetary policy more aggressively.
- The US Treasury bond yields hold steady below the post-US election swing high and the US Dollar remains close to its highest level since early July touched on Monday, offering some support to the USD/JPY pair.
- A slew of influential FOMC members are scheduled to speak this week, including Fed Chair Jerome Powell, which, along with the US consumer inflation figures, should offer cues about the US central bank’s rate-cut path.
- This week’s economic docket also features the release of the Prelim Q3 GDP print from Japan and the US monthly Retail Sales figures on Friday, which might contribute to providing a fresh impetus to the USD/JPY pair.
Technical Outlook: USD/JPY seems poised to challenge multi-month top, around the 154.70 area
From a technical perspective, the recent breakout above the 200-day Simple Moving Average (SMA) and the overnight close above the 61.8% Fibonacci retracement level of the July-September downfall favors bullish traders. Moreover, oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone, validating the near-term positive outlook for the USD/JPY pair. Hence, a subsequent move up back towards challenging a multi-month top, around the 154.70 area, looks like a distinct possibility. This is closely followed by the 155.00 psychological mark, above which spot prices could accelerate the momentum towards the 155.65-155.70 intermediate resistance en route to the 156.00 round figure.
On the flip side, the 61.8% Fibo. resistance breakpoint, around the 153.35 region, now seems to protect the immediate downside ahead of the 153.00 mark and the 152.70-152.65 horizontal support. Any further corrective decline might still be seen as a buying opportunity near the 152.00 mark and remain limited near the 200-day SMA. The latter is currently pegged around the 151.75 region and is followed by last week’s swing low, around the 151.25 area. A convincing break below the latter might prompt some technical selling and drag the USD/JPY pair further below the 151.00 round figure, towards the 150.35-150.30 intermediate support en route to the 150.00 psychological mark.
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.
Source: https://www.fxstreet.com/news/japanese-yen-weakens-further-against-usd-usd-jpy-retakes-15400-202411120218