Japanese Yen remains close to multi-month low against US Dollar
- The Japanese Yen continues to be undermined by wavering BoJ rate hike expectations.
- The au Jibun Bank Japan Services PMI was revised down to 50.9 from 51.4 for December.
- The USD stands near a two-year top amid the Fed’s hawkish shift and supports USD/JPY.
The Japanese Yen (JPY) attracts fresh sellers at the start of a new week and remains close to a multi-month low touched against its American counterpart in December on the back of the Bank of Japan's (BoJ) dovish outlook. Apart from this, the prevalent risk-on environment is seen undermining the safe-haven JPY. Furthermore, a bullish US Dollar (USD), bolstered by the Federal Reserve's (Fed) hawkish signal and the optimism over US President-elect Donald Trump's expansionary policies, acts as a tailwind for the USD/JPY pair.
Meanwhile, data released earlier this Monday showed that the business activity in Japan's service sector expanded for the second straight month in December. This comes on top of a pick-up in Japan's service-sector inflation and backs the case for a January BoJ rate hike. Apart from this, geopolitical risks and concerns about Trump's tariff plans hold back the JPY bears from placing aggressive bets. Moreover, speculations that Japanese authorities might intervene to prop up the domestic currency should help limit deeper JPY losses.
Japanese Yen bulls remain on the sidelines amid BoJ rate-hike uncertainty
- The Bank of Japan last month offered few clues on how soon it could push up borrowing costs again, while stressing the need to be more cautious amid domestic and global uncertainties.
- The au Jibun Bank Service Purchasing Managers' Index (PMI) was revised down to 50.9 for December, from the flash reading of 51.4, still marked expansion for the second straight month.
- The survey further revealed that the subindex of new business rose for a sixth straight month, employment grew for the 15th consecutive month and business sentiment stayed positive.
- BoJ Governor Kazuo Ueda hopes that wages and prices increase at a balanced pace this year and said that the timing of adjusting monetary support depends on economic, price and financial developments.
- Markets expect that the BoJ will raise rates to 0.50% by the end of March from 0.25%. The next BoJ meeting is scheduled on January 23-24 followed by another meeting on March 18-19.
- The Institute of Supply Management (ISM) reported on Friday that the US Manufacturing PMI improved from 48.4 to 49.3 in December, pointing to signs of resilience and potential for growth.
- The Federal Reserve signaled in December that it would slow the pace of interest rate cuts in 2025, which has been pushing the US Treasury bond yields and the US Dollar higher in recent weeks.
- San Francisco Fed President Mary Daly said on Saturday that despite significant progress in lowering price pressures over the past two years, inflation remains uncomfortably above the 2% target.
- Traders now look to the US economic docket – featuring the release of the final Services PMI and Factor Orders data – for some impetus and short-term trading opportunities later today.
- Investors this week will confront other important US macro data – ISM Services PMI, JOLTS Job Openings, the ADP report on private-sector employment and the Nonfarm Payrolls (NFP) report.
USD/JPY remains confined in a familiar range held over the past two weeks
Any subsequent move-up is likely to face some resistance around the 158.00 neighbourhood, or the multi-month peak. A sustained move beyond will be seen as a fresh trigger for bullish traders and pave the way for additional gains amid positive oscillators on the daily chart. The USD/JPY pair might then aim to surpass the 158.45 intermediate hurdle and reclaim the 159.00 mark. The momentum could extend further towards the 160.00 psychological mark en route to the 160.50 area, which coincides with the top end of a multi-month-old ascending channel.
On the flip side, the Asian session low, around the 157.00 mark, now seems to protect the immediate downside ahead of the 156.65 horizontal zone and the 156.00 mark. Any further decline could be seen as a buying opportunity near the 155.50 region and help limit losses for the USD/JPY pair near the 155.00 psychological mark. The latter should act as a strong base for spot prices, which if broken decisively might shift the near-term bias in favor of bearish traders.
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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