Japanese Yen drifts lower amid BoJ uncertainty; USD/JPY rebounds from one-week low
- The Japanese Yen attracts fresh sellers on Tuesday amid wavering BoJ rate hike expectations.
- Easing fears about Trump's tariff plans boosts the risk sentiment and also undermines the JPY.
- Hawkish Fed-inspired elevated US bond yields favor the USD bulls and lend support to USD/JPY.
The Japanese Yen (JPY) struggles to capitalize on gains registered against its American counterpart over the past three days and attracts fresh sellers during the Asian session on Tuesday. Investors remain uncertain about the likely timing of when the uncertainty surrounding the likely timing of when the Bank of Japan (BoJ) will hike rates again. Furthermore, reports that US President-elect Donald Trump's top economic advisers are mulling a slow ramp-up in tariffs boost investors' confidence and undermine the safe-haven JPY.
Moreover, the Federal Reserve's (Fed) hawkish shift dashed hopes for an immediate narrowing of the US-Japan yield differential and is seen as another factor acting as a headwind for the JPY. This, in turn, assists the USD/JPY pair to stall its retracement slide from a multi-month peak touched last Friday. Meanwhile, easing fears about disruptive trade tariffs under Trump 2.0 triggers a modest pullback in the US Treasury bond yields, which keeps the US Dollar (USD) below a two-year top and might cap the pair ahead of the US Producer Price Index (PPI).
Japanese Yen bears have the upper hand amid BoJ rate hike uncertainty
- Bank of Japan Deputy Governor Ryozo Himino said on Tuesday that while the direction is for further rate hikes, the central bank must carefully watch various upside and downside risks at home and abroad.
- Moreover, some investors are betting that the BoJ may wait until April to seek confirmation that strong wage momentum will carry over into the spring negotiations before raising interest rates again.
- According to a Bloomberg report on Monday, US President-elect Donald Trump’s incoming economic team is considering a program of gradual increases in import tariffs over the coming months.
- The proposal aimed at preventing a sudden increase in inflation triggers a modest pullback in the US Treasury bond yields and prompts some US Dollar profit-taking from over a two-year peak.
- Against the backdrop of the Federal Reserve's hawkish outlook, Friday's upbeat US Nonfarm Payrolls report raised doubts about the likelihood of rate cuts in 2025 and should support the USD.
- The yield on the benchmark 10-year US government bond retreats from a 14-month high as investors look forward to key inflation prints, starting with the Producer Price Index later today.
USD/JPY needs to find acceptance above 158.00 for bulls to regain control
From a technical perspective, the overnight resilience below the 157.00 mark and the subsequent move up, along with positive oscillators on the daily chart, favor bullish traders. That said, intraday failure near the 158.00 round figure marks it prudent to wait for a sustained strength beyond the said handle before positioning for additional gains. The USD/JPY pair might then accelerate the momentum towards the 158.55 intermediate hurdle en route to the multi-month top, around the 158.85-158.90 zone. Some follow-through buying above the 159.00 mark will set the stage for further gains towards the next relevant hurdle near the mid-159.00s before spot prices aim to reclaim the 160.00 psychological mark.
On the flip side, the 157.00-156.90 area might continue to protect the immediate downside. Any further slide could be seen as a buying opportunity around the 156.25-156.20 area, or last week's swing low. This should help limit the downside for the USD/JPY pair near the 156.00 mark, which if broken decisively might shift the near-term bias in favor of bearish traders and pave the way for some meaningful corrective decline.
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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