The Japanese yen (JPY) strengthened across the board during the Asian session on Tuesday, moving further away from a more than two-week low touched against its US counterpart the previous day. Comments from Japan’s Economy Minister Minoru Kiuchi fueled speculation about possible government intervention to stem further JPY depreciation. This, in turn, prompts traders to ease their JPY bearish bets ahead of this week’s key central bank event risks – the start of a two-day FOMC meeting later today and the Bank of Japan (BoJ) policy update on Thursday.
Meanwhile, data released on Monday showed that Japan’s service sector inflation rose for a second month in a row in September, bolstering expectations of potential gradual rate hikes by the BoJ. In contrast, traders now appear to have fully priced in that the US Federal Reserve will cut borrowing costs two more times by the end of the year. This, along with continued uncertainty about US-China trade talks, benefits the JPY. However, expectations of aggressive fiscal spending under Japan’s new Prime Minister Sanae Takaichi may keep a lid on any meaningful JPY gains.
Japanese Yen bears choose to ease their bets after some verbal intervention
- Japan’s Economy Minister Minoru Kiuchi said on Tuesday that it is important for foreign exchange (FX) movements to be stable and reflect fundamentals, adding that he will examine its impact on Japan’s economy.
- Japanese Prime Minister Sanae Takaichi said she wants to realize a new golden age for the Japan-US alliance. Also, US President Donald Trump said that we are signing a new agreement with Japan, and it is a fair agreement.
- Data released on Monday showed Japan’s services producer price index accelerated to 3.0% in September, confirming bets on further tightening by the Bank of Japan and also lending support to the Japanese yen.
- This marks a significant divergence from growing market acceptance that the US central bank will cut borrowing costs by 25 basis points at the end of a two-day policy meeting on Wednesday.
- Furthermore, traders have priced in a greater possibility of another interest rate cut by the US central bank in December. This keeps the US Dollar bulls on the defensive and puts further pressure on the USD/JPY pair.
- Meanwhile, Takaichi is known for his pro-stimulus stance and could resist an early tightening by the BoJ. Therefore, the BoJ’s policy update on Thursday will be seen as guidance on a rate hike in December or early next year.
- Trump said ahead of his expected meeting with Chinese leader Xi Jinping that the US and China were ready to strike a trade deal. Trump added that he could sign a final deal on TikTok as early as Thursday.
- The optimism continues to support positive market sentiment and could help limit any meaningful appreciative move for the safe haven JPY, which should in turn help limit losses for the USD/JPY pair.
USD/JPY needs to weaken further below 152.00 to support the case for deeper losses
A failure near the monthly swing high around the 153.25-153.30 region and subsequent decline warrants some caution for the USD/JPY bulls. However, positive oscillators on the daily chart support the case for the emergence of some dip buyers near the 152.00 round number. A convincing break below the latter could nullify the positive outlook and pave the way for deeper losses towards the 151.10-151.00 zone with some intermediate support near the 151.50-151.45 area.
On the upside, the 152.90-153.00 region now appears to act as an immediate obstacle ahead of the 153.25-153.30 zone, above which the USD/JPY pair could aim to regain the 154.00 round figure. Momentum may extend further towards the next relevant resistance near the mid-154.00s on the way to the 154.75-154.80 region and 155.00 psychological mark.
Japanese Yen Frequently Asked Questions
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 difference 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 actions are key to the yen. The BoJ has sometimes intervened directly in foreign exchange markets, generally to lower the value of the yen, although it often refrains from doing so due to political concerns of its main trading partners. The BoJ’s ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its major currency peers due to increasing policy divergence between the Bank of Japan and other major central banks. Recently, the gradual unwinding of this ultra-loose policy has provided some support to the yen.
Over the past decade, the BoJ’s stance of maintaining an ultra-loose monetary policy has led to a growing policy divergence with other central banks, particularly the US Federal Reserve. This supported a widening of the spread between the 10-year US and Japanese bonds, which favored the US dollar against the Japanese yen. The BoJ’s decision in 2024 to gradually abandon ultra-loose policy, combined with interest rate cuts by other major central banks, narrows this gap.
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 into the Japanese currency due to its perceived reliability and stability. Turbulent times are likely to strengthen the yen’s value against other currencies considered riskier to invest in.