Japanese Yen remains weaker as business activity shows signs of contraction
- The USD/JPY pair holds its position near a 38-year high of 161.75.
- The Jibun Bank Japan Services PMI was revised downward to 49.4 in June, marking a reversal from May's 53.8.
- The US Dollar edges higher due to a recovery in yield on 2-year Treasury bond.
The Japanese Yen (JPY) continues to hold losses on Wednesday, remaining near its low of 161.75, a level not seen since 1986, recorded in the previous session. This decline can be attributed to final data indicating that Japan's business activity turned contractionary in June. Market participants focus on the possibility of foreign exchange (FX) intervention from the Bank of Japan (BoJ), which could support the JPY and limit the upside of the USD/JPY pair.
Japan’s 10-ear government bond yield increased to a near 13-year high of 1.11%. Traders continue to evaluate the Bank of Japan's monetary policy outlook amid a sharply depreciating Japanese Yen, which drives up import costs and contributes to inflationary pressures. Additionally, the central bank also announced plans to unveil a strategy for winding down its bond-buying program in July.
The US Dollar (USD) halted its four-day losing streak due to a recovery in yield on a 2-year Treasury bond, which stands at 4.75% at the time of writing. Traders await the release of the US ADP Employment Change, ISM Services PMI for June, and the FOMC Minutes scheduled for Wednesday.
Daily Digest Market Movers: Japanese Yen declines due to softer Services PMI
- The Jibun Bank Japan Services PMI was revised downward to 49.4 in June from May’s 49.8 reading. This marks a reversal from May's 53.8 and represents the first decline in services activity since August 2022.
- The Federal Reserve (Fed) Chair Jerome Powell turned slightly dovish on Tuesday. Powell said that the Fed is getting back on the disinflationary path. However, Powell wants to see further evidence before cutting interest rates as the US economy and the labor market remain strong, per Reuters.
- Chicago Federal Reserve Bank President Austan Goolsbee cautioned on Tuesday during an interview with CNBC, stating, "I see some warning signs that the real economy is weakening." Goolsbee further mentioned that progress toward the Fed's 2% inflation target could accelerate more swiftly than anticipated.
- According to the latest Reuters survey conducted from June 25 to July 1, the Bank of Japan is expected to reduce its monthly bond purchases by roughly $100 billion (¥16.00 trillion) in the first year under a quantitative tightening (QT) plan set for release this month. This adjustment would bring the monthly purchases to approximately ¥4.65 trillion, down from the current pace of about ¥6.00 trillion. In the second year, survey respondents anticipate further reductions, with monthly purchases averaging around ¥3.55 trillion.
- Japanese Finance Minister Shunichi Suzuki stated on Tuesday that he is "closely watching FX moves with vigilance." Suzuki refrained from commenting on specific forex levels, noting that there is no change in the government's stance on foreign exchange, according to Reuters.
- On Monday, OCBC strategists Frances Cheung and Christopher Wong noted that “USD/JPY continued to trade near recent highs. This is also near the highest level since 1986. There are expectations that Japanese authorities could soon intervene. While the level of JPY is one factor to consider, officials also focus on the pace of depreciation as the intent of intervention is to curb excessive volatility.”
Technical Analysis: USD/JPY holds ground above 161.50
USD/JPY trades around 161.60 on Wednesday. The daily chart analysis indicates a bullish bias, with the pair holding ground near the upper boundary of an ascending channel pattern. However, caution is advised as the 14-day Relative Strength Index (RSI) is above 70, signaling overbought conditions and suggesting a possible correction in the near term.
The USD/JPY pair might test the upper boundary of the ascending channel near 161.80. A breakout above this level could strengthen bullish sentiment, potentially pushing the pair toward the psychological resistance at 162.00.
On the downside, immediate support is seen around the nine-day Exponential Moving Average (EMA) at 160.60. A breach below this level could weaken the bullish bias, potentially guiding USD/JPY toward the lower boundary of the ascending channel near 158.60. Further decline below this channel support could lead to a test of June's low at 154.55.
USD/JPY: Daily Chart
Japanese Yen PRICE Today
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the weakest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.02% | 0.00% | 0.10% | 0.02% | -0.08% | -0.02% | 0.02% | |
| EUR | -0.02% | -0.02% | 0.09% | -0.00% | -0.10% | -0.01% | 0.00% | |
| GBP | -0.00% | 0.02% | 0.10% | 0.01% | -0.09% | 0.00% | 0.02% | |
| JPY | -0.10% | -0.09% | -0.10% | -0.10% | -0.19% | -0.11% | -0.08% | |
| CAD | -0.02% | 0.00% | -0.01% | 0.10% | -0.10% | -0.02% | 0.00% | |
| AUD | 0.08% | 0.10% | 0.09% | 0.19% | 0.10% | 0.09% | 0.11% | |
| NZD | 0.02% | 0.00% | -0.01% | 0.11% | 0.02% | -0.09% | 0.02% | |
| CHF | -0.02% | -0.00% | -0.02% | 0.08% | -0.00% | -0.11% | -0.02% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
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 current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.
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 supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.
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.
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