Japanese Yen hangs near one-month low against USD; BoJ decision awaited
- The Japanese Yen consolidates its recent losses against the USD to a one-month trough.
- Traders opt to move to the sidelines and await the BoJ decision before placing fresh bets.
- The USD preserves the post-FOMC gains and acts as a tailwind for the USD/JPY pair.
The Japanese Yen (JPY) will be in the spotlight this Thursday as the Bank of Japan (BoJ) is scheduled to announce its final policy decision of the year. The BoJ is widely expected to keep interest rates steady, though it might signal a potential rate hike in January. That said, the risk of a surprise rate hike later today holds back the JPY bears from placing fresh bets. Apart from this, the risk-off impulse – as depicted by a sea of red across the global equity markets – offers some support to the safe-haven JPY. This caps the overnight USD/JPY rally to a nearly one-month peak.
Meanwhile, the Federal Reserve's (Fed) hawkish interest rate cut on Wednesday pushed the long-dated US Treasury yields to a multi-month top and should keep a lid on the lower-yielding JPY. Furthermore, the post-FOMC US Dollar (USD) rise to its highest level in two years should contribute to limiting the downside for the USD/JPY pair. Nevertheless, the crucial BoJ policy decision is likely to infuse volatility in the markets and any hawkish signal might trigger another JPY carry trade unwinding, which, in turn, should weigh heavily on the currency pair.
Japanese Yen bears retain control ahead of the crucial BoJ policy update
- The Federal Reserve lowered its benchmark policy rate by 25 basis points on Wednesday to the 4.25%-4.50% range, marking the third rate cut since September.
- Meanwhile, the so-called dot plot indicated that policymakers now see just two quarter-point rate cuts next year compared to four rate cuts forecasted in September.
- In his post-meeting press conference, Fed Chair Jerome Powell said that inflation remains somewhat elevated relative to the central bank’s 2% longer-run goal.
- The yield on the benchmark 10-year US government bond recorded its highest closing since May 31 and the US Dollar shot to a two-year high after the Fed's hawkish cut.
- Elevated US bond yields, along with expectations that the Bank of Japan will keep interest rates unchanged, continue to weigh on the Japanese Yen on Thursday.
- The JPY bears, however, refrain from placing fresh bets and opt to move to the sidelines ahead of the latest BoJ policy update for cues about a January rate hike.
- Later during the early North American session, the US macro data – the final Q3 GDP print and Weekly Initial Jobless Claims – might provide some impetus.
- The market attention will then shift to the US inflation data – the US Personal Consumption Expenditures (PCE) Price Index, due for release on Friday.
USD/JPY seems poised to appreciate further; move beyond 155.00 is awaited
Against the backdrop of the recent strong move up from 100-day Simple Moving Average (SMA) support, or the monthly low, a subsequent strength beyond the 155.00 psychological mark could be seen as a key trigger for bullish traders. Furthermore, oscillators on the daily chart have been gaining positive traction and are still away from being in the overbought zone. Hence, a sustained strength beyond the said handle should allow the USD/JPY pair to surpass the 155.40-155.45 intermediate hurdle and aim to reclaim the 156.00 mark. The momentum could extend further towards testing the multi-month top, around the 156.75 area touched in November.
On the flip side, the 154.25 area now seems to act as an immediate support ahead of the 154.00 mark. Some follow-through selling might expose the weekly low, around the 153.15 region, which if broken could drag the USD/JPY pair to the next relevant support near the 152.55-152.50 zone. Any further decline could be seen as a buying opportunity and remain limited near the very important 20-day SMA pivotal support near the 152.20 region. Failure to defend the said support levels might shift the near-term bias in favor of bearish traders and make spot prices vulnerable to weaken further towards the 151.00 round-figure 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.