- The Japanese Yen ticks higher as stronger domestic inflation revives bets for more BoJ rate hikes.
- The upbeat market mood and elevated US bond yields cap the upside for the lower-yielding JPY.
- The USD stands firm near its highest level in over a year and offers support to the USD/JPY pair.
The Japanese Yen (JPY) attracted some follow-through buying for the second successive day following the release of slightly higher-than-expected consumer inflation figures from Japan. This comes on top of Thursday’s hawkish remarks from BoJ Governor Kazuo Ueda, which keeps expectations for a December interest rate hike in play. Adding to this, Japan’s Prime Minister Shigeru Ishiba’s economic stimulus package worth ¥39 trillion boosts the JPY and exerts some pressure on the USD/JPY pair.
That said, the prevalent risk-on environment and elevated US Treasury bond yields hold back traders from placing aggressive bullish bets around the lower-yielding JPY. Investors remain concerned that US President Donald Trump’s policies could reignite inflation and force the Federal Reserve (Fed) to cut interest rates slowly. This has been a key factor behind the recent surge in the US bond yields, which keeps the US Dollar (USD) near the year-to-date peak and lends support to the USD/JPY pair.
Japanese Yen struggles to gain any meaningful traction despite stronger CPI print from Japan
- The Japan Statistics Bureau reported this Friday that the National Consumer Price Index (CPI) eased from 2.5% to the 2.3% YoY rate in October, while the core CPI, which excludes volatile fresh food items, grew 2.3%.
- Additional details revealed that a core inflation reading that excludes both energy and fresh food costs remained above the Bank of Japan’s 2% annual target and rose to 2.3% in October from 2.1% in the prior month.
- The Bank of Japan Governor Kazuo Ueda said on Thursday that the central bank will seriously take into account the impact the recent foreign exchange-rate movements could have on the economic and price outlook.
- This keeps the door open for another BoJ interest rate-hike move in December, which, along with geopolitical risks from the worsening Russia-Ukraine war, boosts the Japanese Yen during the Asian session on Friday.
- Meanwhile, US data released on Thursday showed that Weekly initial jobless claims dropped by 6,000 to 213,000, or a seven-month low last week as compared to consensus estimates for a reading of 220,000.
- US Existing Home Sales rebounded sharply after September’s slump to the lowest since October 2010 and rose to an annual rate of 3.96 million units in October, posting the first annual gain since mid-2021.
- A survey showed that manufacturing activity in the Philadelphia region unexpectedly contracted in November. The Federal Reserve (Fed) Bank of Philadelphia’s Manufacturing Index dropped to -5.5 from +10.3.
- Chicago Fed President Austan Goolsbee said that the inflation is on its way down to 2% and that it may make sense to slow the pace of interest rate cuts as the US central bank gets close to where rates will settle.
- Separately, New York Fed President John Williams noted that he sees inflation cooling and interest rates falling further as the labor market is now in balance and not providing any upward pressure on inflation.
- The US Dollar shot to its highest level since October 4, 2023, amid expectations that US President-elect Donald Trump’s policies could reignite inflation and limit the scope for the Fed to cut interest rates further.
- Furthermore, persistent concerns about inflation and potential fiscal expansion keep the US Treasury bond yields elevated, which, along with the upbeat market mood, caps the upside for the safe-haven JPY.
- Traders now look forward to the release of the flash US Manufacturing and Services PMI prints, and the revised Michigan Consumer Sentiment Index for short-term opportunities heading into the weekend.
USD/JPY technical setup supports prospects for the emergence of dip-buying near weekly low
From a technical perspective, the USD/JPY pair has been showing some resilience below the 154.00 mark. Adding to this, oscillators on the daily chart are holding in positive territory, suggesting that any subsequent slide towards the 153.30-153.25 area, or the weekly low, could be seen as a buying opportunity. Some follow-through selling below the 153.00 mark, however, could drag spot prices to the next relevant support near mid-152.00s en route to the 152.00 round figure. The said handle coincides with the 200-day Simple Moving Average (SMA) and should act as a key pivotal point for short-term traders.
On the flip side, immediate support is pegged near the 155.00 psychological mark, above which the USD/JPY pair could climb to the 155.40 supply zone. A sustained strength beyond the latter could lift spot prices beyond the 156.00 round figure, towards the 156.25-156.30 intermediate hurdle en route to the multi-month peak, around the 156.75 region touched last week.
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-fails-to-build-on-stronger-cpi-led-intraday-uptick-against-usd-202411220227