Japanese Yen languishes near two-month low against USD, US CPI report awaited
- The Japanese Yen dropped to a two-month low against the USD on Wednesday amid the BoJ uncertainty.
- Rising bets for a regular 25 bps Fed rate cut move in November offer support to the USD and USD/JPY.
- The JPY bulls seem unimpressed by Japan’s PPI print as the focus remains glued to the US CPI report.
The Japanese Yen (JPY) weakened across the board on Wednesday amid the uncertainty over the Bank of Japan's (BoJ) plans for additional interest rate hikes. Apart from this, the risk-on impulse undermined demand for the safe-haven JPY, which, along with a fresh wave of the US Dollar (USD) buying, pushed the USD/JPY pair to the 149.35 region, or its highest level since mid-August.
Meanwhile, data published earlier this Thursday showed that the Producer Price Index (PPI) in Japan remained unchanged in September and the yearly rate rose more than anticipated during the reported month. This, in turn, offers support to the JPY and caps the USD/JPY pair. Furthermore, traders opt to move to the sidelines ahead of the release of the US consumer inflation figures.
Daily Digest Market Movers: Japanese Yen seems vulnerable amid fading hopes for more BoJ rate hikes, bullish USD
- Data published on Tuesday showed that Japan’s real wages fell in August after two months of gains and a decline in household spending, raising doubts about the strength of private consumption and a sustained economic recovery.
- This comes on top of blunt comments on monetary policy by Japan's Prime Minister Shigeru Ishiba and fuels uncertainty over the Bank of Japan's rate hike plans, which weighed on the Japanese Yen and pushed the USD/JPY pair higher.
- The US Dollar shot to its highest level since August 16 after minutes from the September FOMC meeting revealed that a majority supported the 50 basis point rate cut as the committee was confident of inflation moving toward the 2% goal.
- Some participants, however, indicated that they would have preferred only a 25 bps rate reduction, citing that inflation was still somewhat elevated while economic growth remained solid and unemployment remained low.
- Furthermore, there was a broader agreement that the outsized rate cut would not lock the Federal Reserve into any specific pace for future interest rate cuts and should not be seen as a sign of a more negative economic outlook.
- Dallas Fed President Lorie Logan argued on Wednesday that she favored smaller reductions going forward as there were still real upside risks to inflation and pointed to meaningful uncertainties surrounding the economic outlook.
- Separately, Boston Fed President Susan Collins stressed that policy is not on a pre-set path and will remain carefully data-dependent and added that it will be important to preserve the currently healthy labor market conditions.
- Furthermore, San Francisco Fed President Mary Daly said that the size of the September rate cut does not say anything about the size of the next cuts and that one or two more rate cuts this year are likely if the economy evolves as she expects.
- According to the CME Group's FedWatch Tool, market participants are now pricing in a greater chance that the Fed will lower borrowing costs by 25 bps in November and over a 20% probability that it will keep interest rates on hold.
- The yield on the rate-sensitive two-year US government bond rose to its highest yield since August 19, while the benchmark 10-year Treasury yield climbed for the sixth straight day on Wednesday, to its highest level since July 31.
- A BoJ report showed on Thursday that the Producer Price Index (PPI) in Japan remained unchanged in September against a 0.3% decline anticipated, while the yearly rate unexpectedly inched up from 2.6% in August to 2.8%.
- Investors now await the US Consumer Price Index (CPI), due later today, which, along with the US Producer Price Index on Friday, might influence market expectations about the Fed's rate-cut path and drive the USD/JPY pair.
Technical Outlook: USD/JPY seems poised to appreciate further, bulls might aim to reclaim the 150.00 psychological mark
From a technical perspective, the overnight sustained close above the 38.2% Fibonacci retracement level of the July-September downfall and the 149.00 mark could be seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart have been gaining positive traction and are away from being in the overbought territory, suggesting that the path of least resistance for the USD/JPY pair is to the upside. Hence, a further appreciation towards the 150.00 psychological mark en route to the 50% retracement level, around the 150.75-150.80 region, looks like a distinct possibility.
On the flip side, any meaningful slide below the 149.00 mark now seems to attract some buyers near the 148.70-148.65 region. This, in turn, should help limit the downside for the USD/JPY pair near the 148.00 round figure. The latter should act as a key pivotal point, which if broken might prompt some technical selling and drag spot prices to the 147.35 intermediate support en route to the 147.00 mark and the 146.50 area.
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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