Japanese Yen hovers near one-week top against USD as US election looms large
- The Japanese Yen weakens slightly on Tuesday, though the downside remains cushioned.
- The BoJ’s hawkish hints, along with a weaker risk tone, offer support the safe-haven JPY.
- The US election-related uncertainty and Fed rate cut bets keep the USD bulls on the defensive.
The Japanese Yen (JPY) ticks lower against its American counterpart during the Asian session on Tuesday and moves away from a one-week high touched the previous day. The downside for the JPY, however, seems limited as traders might refrain from placing aggressive directional bets amid the uncertainty surrounding the US presidential election. Moreover, bets for a potential interest rate hike at the next Bank of Japan (BoJ) policy meeting in December could also offer some support to the JPY.
Meanwhile, the "Trump trade" unwinding, along with expectations that the Federal Reserve (Fed) will lower interest rates later this week, leads to a further decline in the US Treasury bond yields, resulting in the narrowing of the US-Japan rate differential. This keeps the US Dollar (USD) bulls on the defensive and should act as a tailwind for the JPY. Furthermore, a weaker risk tone could benefit the JPY and contribute to keeping a lid on any meaningful appreciating move for the USD/JPY pair.
Daily Digest Market Movers: Japanese Yen could draw support from BoJ rate hike bets, declining US bond yields
- The USD/JPY pair regains some positive traction on Tuesday, though a combination of factors might cap the upside ahead of this week's key event risks – the US presidential election and the Federal Open Market Committee (FOMC) meeting.
- Despite the political uncertainty in Japan, Bank of Japan Governor Kazuo Ueda said last week that the central bank remains committed to normalizing its monetary policy by gradually hiking interest rates if economic data align with forecasts.
- Friday's weaker US jobs report for October, which showed that Nonfarm Payrolls registered the smallest gain since December 2020, reaffirmed market bets for a 25 basis point interest rate cut by the Federal Reserve later this week.
- The chances of Donald Trump winning the 2024 US presidential election have deteriorated noticeably and the Democratic Vice President Kamala Harris has a slight lead in some polls, though overall they show a tight race to the White House.
- This prompts traders to unwind "Trump trades" and leads to a further decline in US Treasury bond yields, narrowing the US-Japan rate differential and offering some support to the Japanese Yen amid a generally weaker risk tone.
- Meanwhile, the "Trump trade" unwinding fails to assist the US Dollar to capitalize on the overnight bounce from a two-week low, warranting some caution for the USD/JPY bulls and positioning for any meaningful appreciating move.
Technical Outlook: USD/JPY technical setup favors bulls, the overnight swing low around mid-151.00s holds the key
From a technical perspective, the 152.00 round figure now seems to protect the immediate downside ahead of the overnight swing low, around the 151.55-151.50 region. Some follow-through selling could drag the USD/JPY pair further below the 151.00 mark, toward testing the 100-day Simple Moving Average (SMA) resistance breakpoint, currently pegged near the 150.30 region. This is followed by the 150.00 psychological mark, which if broken decisively will set the stage for deeper losses.
On the flip side, momentum beyond the overnight swing high, around the 152.55-152.60 area, could extend further toward the 153.00 mark. The subsequent move up has the potential to lift the USD/JPY pair to the 153.35-153.40 supply zone en route to the 153.85-153.90 region, or a three-month peak touched last week. A sustained strength beyond the latter will be seen as a fresh trigger for bullish traders. Given that oscillators on the daily chart are holding in the positive territory, spot prices might then climb to the next relevant hurdle near the 154.60-154.70 area before aiming to reclaim the 155.00 psychological 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.
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