- The Japanese Yen attracts some haven flows, though it lacks bullish conviction.
- The BoJ rate-hike uncertainty and disappointing data cap the upside for the JPY.
- Smaller Fed rate cut bets underpin the USD and offer some support to USD/JPY.
The Japanese Yen (JPY) struggles to capitalize on the previous day’s recovery move against its American counterpart, from its lowest level since early August and oscillates in a narrow band during the Asian session on Wednesday. The uncertainty over the Bank of Japan’s (BoJ) rate-hike plans turns out to be a key factor acting as a headwind for the JPY. Adding to this, the disappointing release of Japan’s Core Machinery Orders for August contributes to capping the JPY.
That said, a turnaround in the global risk sentiment – as depicted by a weaker tone around the equity markets – might continue to offer some support to the safe-haven JPY amid persistent geopolitical risks. Furthermore, a modest US Dollar (USD) downtick holds back traders from placing fresh bullish bets around the USD/JPY pair and leads to subdued price action. Nevertheless, the fundamental backdrop supports prospects for some near-term appreciating move for the pair.
Daily Digest Market Movers: Japanese Yen struggles to attract any follow-through buying amid BoJ uncertainty
- The Japanese Yen struggles to capitalize on the previous day’s recovery against the US Dollar, from its lowest level since early August, amid doubts over when the Bank of Japan would raise interest rates again.
- A significant dovish shift in rhetoric from the BoJ Governor Kazuo Ueda and a surprising opposition to further rate hikes from Japan’s Prime Minister Shigeru Ishiba fueled uncertainty around the monetary policy.
- Government data showed this Wednesday that Japan’s Core Machinery Orders fell for the second straight month, by 1.9% in August, missing estimates by a big margin and signaling deterioration in demand.
- Given that manufacturing represents about 15% of Japan’s workforce, weaker orders may affect the labor market, resulting in slower wage growth, reduced consumer spending and complicating BoJ’s rate-hike plans.
- The US Dollar consolidates near its highest level since August 8 amid firming expectations for a less aggressive policy easing by the Federal Reserve and bets for a regular 25 basis points interest rate cut in November.
- San Francisco Fed President Mary Daly noted on Tuesday that the US central bank has made significant progress on tamping down inflation and sees one or two more rate cuts this year if economic forecasts are met.
- Atlanta Fed President Raphael Bostic said that he doesn’t see strong signs of a potential recession looming over the horizon as the US economy continues to perform well and that the inflation is heading back to 2%.
- The Biden administration has warned Israel that it faces possible punishment, including the potential stopping of US weapons transfers if it does not take immediate action to let more humanitarian aid into Gaza.
Technical Outlook: USD/JPY bulls might wait for acceptance above 150.00 psychological mark before placing fresh bets
From a technical perspective, any further decline is likely to find decent support near the 148.60-148.55 region. Some follow-through selling, however, could make the USD/JPY pair vulnerable to weaken further below the 148.00 round figure and test last week’s swing low, around the 147.35 area. The latter is followed by the 147.00 mark, which if broken decisively will suggest that the recent move-up witnessed over the past month or so has run its course and pave the way for deeper losses.
On the flip side, the 150.00 psychological mark seems to act as an immediate strong barrier, above which the USD/JPY pair could accelerate the positive move towards the August monthly swing high, around the 150.85-150.90 region. Some follow-through buying beyond the 151.00 mark will be seen as a fresh trigger for bullish traders and lift spot prices to the 152.00 neighborhood en route to the 152.65-152.70 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.