Japanese Yen drops to fresh multi-month low against USD, bears not ready to give up
- The Japanese Yen continues losing ground amid the BoJ rate-hike uncertainty.
- The bullish USD contributes to the USD/JPY pair’s move-up to a multi-month top.
- The JPY bears shrug off the possibility of an intervention by Japanese authorities.
The Japanese Yen (JPY) remains on the back foot against its American counterpart for the fourth consecutive session as of Thursday and slides to the lowest level since July 24 during the Asian session. Although Japan's Producer Price Index (PPI) rose by the fastest annual pace in more than a year during October, investors seem convinced that the domestic political uncertainty will make it difficult for the Bank of Japan (BoJ) to hike interest rates again. Apart from this, growing concerns over the possibility that US President-elect Donald Trump will impose high tariffs and their impact on the Japanese economy continue to undermine the JPY.
Meanwhile, expectations that expansionary policies from the incoming Trump administration could stimulate inflation keep the US Treasury bond yields elevated near a multi-month top, which further seems to undermine the lower-yielding JPY. Adding to this, the continuation of the so-called Trump trade lifts the US Dollar (USD) to its highest level since November 2023 and acts as a tailwind for the USD/JPY pair. That said, intervention fears could limit the JPY losses. This, along with bets for another 25-basis-points (bps) rate cut by the Federal Reserve (Fed) in December, bolstered by the US inflation data on Wednesday, might cap the pair.
Japanese Yen selling remains unabated amid doubts over BoJ’s rate-hike plans and relentless USD buying
- A rise in Japan's wholesale inflation in October complicates the Bank of Japan's (BoJ) decision regarding the timing of a potential interest rate hike amid mounting domestic economic concerns.
- The Japanese government is reportedly making arrangements to compile a supplementary budget to fund a stimulus package to help low-income households and offset rising prices.
- Masato Kanda, now a special advisor to Japan's Prime Minister Shigeru Ishiba, said that authorities will act appropriately against excess movements in the FX market.
- The US Bureau of Labor Statistics reported on Wednesday that the headline US Consumer Price Index (CPI) rose by 0.2% in October and by 2.6% over the last twelve months.
- Meanwhile, the core CPI — which excludes the more volatile food and energy categories — recorded an increase of 3.3% as compared to the same time period last year.
- The data did not change expectations that the US Federal Reserve would deliver a third interest rate cut in December against the backdrop of a softening labor market.
- The continuation of the so-called Trump trade keeps the US Treasury bond yields elevated near a four-month peak and lifts the US Dollar to a fresh year-to-date high.
- Traders now look forward to the release of the usual US Weekly Initial Jobless Claims data and the US Producer Price Index (PPI) for short-term opportunities.
- The focus will then shift to Fed Chair Jerome Powell's speech, which should influence the USD/JPY pair ahead of the Prelim Q3 GDP print from Japan on Friday.
USD/JPY could climb further towards the next relevant hurdle near the 156.55-156.60 region
From a technical perspective, the recent breakout through the 61.8% Fibonacci retracement level of the July-September decline and the subsequent close above the 155.00 psychological mark on Wednesday favor bullish traders. Moreover, oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone. This, in turn, suggests that the path of least resistance for the USD/JPY pair remains to the upside. Hence, some follow-through strength beyond the 156.00 mark, towards testing the next relevant hurdle near the 156.55-156.60 area, looks like a distinct possibility. The upward trajectory could extend further towards the 157.00 round figure en route to the 157.30-157.35 supply zone.
On the flip side, the Asian session low, around the 155.35-155.30 region, now seems to protect the immediate downside ahead of the 155.00 mark. A sustained break below the latter might prompt some technical selling and drag the USD/JPY pair to the 154.55-154.50 intermediate support en route to the 154.00 round figure and the 153.80 support. This is followed by support near the 153.45 region, 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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