- The Japanese Yen remains within striking distance of a multi-month low against the USD.
- The BoJ rate-hike uncertainty and the upbeat market mood continue to undermine the JPY.
- Traders now look to the crucial BoJ policy decision and important US macro data this week.
The Japanese Yen (JPY) struggles to capitalize on a modest Asian session uptick against its American counterpart and languishes near a three-month low touched this week. Speculations that the loss of the parliamentary majority by Japan’s ruling coalition could make it difficult for the Bank of Japan (BoJ) to tighten its monetary policy further turn out to be a key factor that continues to undermine the JPY. Adding to this, the prevalent risk-on environment fails to assist the safe-haven JPY in attracting any meaningful buyers.
Any further JPY depreciating move, however, seems limited amid fears that Japanese authorities will intervene in the market to prop up the domestic currency. Traders might also refrain from placing aggressive directional bets and opt to the sidelines ahead of the crucial BoJ decision on Thursday. This, along with key US macro releases – including the Advance Q3 GDP print, the Personal Consumption Expenditure (PCE) Price Index and the Nonfarm Payrolls (NFP) report – should provide a fresh impetus to the USD/JPY pair.
Daily Digest Market Movers: Japanese Yen seems vulnerable as political turnmoil dampens hopes for further BoJ rate hikes
- Japan’s Economy Minister Ryosei Akazawa said on Tuesday that a weak yen can push up prices through higher import costs and if wages are not rising as much, this would push down real household income and depress private consumption.
- Earlier Japan’s Finance Minister Katsunobu Kato reiterated that the authorities will closely monitor FX moves, including those driven by speculators, with a higher sense of vigilance, fueling speculations about a potential government intervention.
- The political turmoil in Japan adds to a layer of uncertainty about the Bank of Japan’s rate-hike plans, which, in turn, should keep a lid on any meaningful appreciating move for the Japanese Yen on the back of the prevalent risk-on environment.
- The US Dollar remains on the defensive below its highest level since July 30 set on Tuesday and drags the USD/JPY pair away from a three-month top, though the downside seems limited ahead of this week’s key central bank event/data risks.
- The BoJ is scheduled to announce its policy decision at the end of a two-day meeting on Thursday. Investors this week will also confront important US macro releases, which might provide fresh cues about the Federal Reserve’s rate outlook.
- Investors are pencilling in a slower pace of interest rate cuts by the Fed as a series of upbeat economic data released recently pointed to the underlying strength of the US economy, which has been pushing the US Treasury bond yields higher.
- The Conference Board reported on Tuesday the US Consumer Confidence Index registered its largest single-month gain since March 2021 and rose to 108.7 in October – a nine-month high – from an upwardly revised 99.2 in the prior month.
- This reflected optimism in business conditions, the job market and incomes, offsetting a rather disappointing Job Openings and Labor Turnover Survey, or JOLTS report, which showed that vacancies fell to more than a 3-1/2-year low in September.
- Adding to his, concerns that the spending plans of Vice President Kamala Harris and the Republican nominee Donald Trump will further increase the budget deficit, which further contributed to the recent upsurge in the US bond yields.
- Traders now look to Wednesday’s US economic docket, featuring the release of the ADP report on private-sector employment and the Advance GDP report, which is expected to show that the economy expanded by a 3% annualized pace in Q3.
Technical Outlook: USD/JPY needs to find acceptance above the 61.8% Fibo. level for bulls to retain near-term control
From a technical perspective, last week’s breakout through the 150.65 confluence – comprising the 100-day Simple Moving Average (SMA) and the 50% Fibonacci retracement level of the July-September downfall – was seen as a fresh trigger for bulls. That said, this week’s repeated failures to find acceptance or build on the momentum beyond the 61.8% Fibo. level warrants some caution. Moreover, the Relative Strength Index (RSI) on the daily chart remains close to the overbought zone, making it prudent to wait for some near-term consolidation or a modest pullback before positioning for further gains.
Any subsequent slide below the 153.00 mark, however, is likely to find some support near the overnight swing low, around the 152.75 region, ahead of the 152.40 area, or the weekly through. Some follow-through selling could drag the USD/JPY pair to the 152.00 mark en route to the 151.45 support and the 151.00 mark. The downward trajectory could extend further towards challenging the 150.65 confluence resistance breakpoint, which should now act as a key pivotal point and a strong base for spot prices.
On the flip side, the 153.85-153.90 region now seems to have emerged as an immediate strong barrier. A sustained strength beyond, leading to a breakout through the 154.00 mark, could lift the USD/JPY pair beyond the 154.35-154.40 supply zone, towards reclaiming the 155.00 psychological mark. Spot prices could eventually climb to test the late-July swing high, around the 155.20 region.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
