Japanese Yen advances to multi-week top against USD amid trade war concerns
- The Japanese Yen benefits from Trump’s tariff threats and the recent fall in the US bond yields.
- The USD struggles to lure buyers and drags the USD/JPY pair to a three-week low on Wednesday.
- Traders now look to the prelim US Q3 GDP print and the US PCE Price Index for a fresh impetus.
The Japanese Yen (JPY) continues to attract some haven flows in the wake of US President-elect Donald Trump's tariff threats. Moreover, the recent pullback in the US Treasury bond yields, which followed Scott Bessent's nomination as the US Treasury Secretary and expectations that he would restrain budget deficits, offers additional support to the lower-yielding JPY. This, along with subdued US Dollar (USD) price action, drags the USD/JPY pair to a nearly three-week low, around the 152.70-152.65 area, during the Asian session on Wednesday.
That said, the uncertainty tied to another interest rate hike by the Bank of Japan (BoJ) in December might hold back traders from placing aggressive JPY bullish bets. Meanwhile, easing geopolitical tensions, amid a ceasefire deal between Israel and Hezbollah, might contribute to capping gains for the safe-haven JPY. The USD, on the other hand, is likely to draw support from bets for slower interest rate cuts by the Federal Reserve (Fed), which could further offer some support to the USD/JPY pair ahead of the key US macro data due later today.
Japanese Yen strengthens as Trump’s tariff threats continue to drive some haven flows
- Concerns that US President-elect Donald Trump's tariffs would trigger trade wars, and impact the global economy, continue to drive some haven flows towards the Japanese Yen.
- Scott Bessent's nomination as the US Treasury secretary provided some respite to US bond investors and dragged the benchmark 10-year US Treasury yield to a two-week low on Monday.
- Data released on Tuesday showed broadening service-sector inflation in Japan, keeping the door open for another rate hike by the Bank of Japan at its next policy meeting in December.
- Japanese Prime Minister Shigeru Ishiba said on Tuesday that he would ask companies to implement significant wage hikes at the annual "Shuntō" negotiations next spring.
- The November FOMC meeting minutes revealed that the Committee could pause its easing of the policy rate and hold it at a restrictive level if inflation remained elevated.
- Officials expressed confidence that inflation is easing and the labor market is strong, which should allow the Federal Reserve to cut rates further, albeit at a gradual pace.
- According to the CME Group's FedWatch Tool, traders are currently pricing in a 63% chance that the Fed will lower borrowing costs by 25 basis points in December.
- The US Dollar struggles to gain any meaningful traction and languishes near the weekly low touched on Tuesday, exerting additional pressure on the USD/JPY pair.
- Lebanon-based Hezbollah militant group said that it launched drones towards Israel on Tuesday night, while Israel launched air strikes on Beirut's southern suburbs.
- Moments later, US President Joe Biden announced that Lebanon and Israel have agreed to the ceasefire deal, which comes into effect from 02:00 GMT this Wednesday.
- Traders now look forward to the first revision of the US Q3 GDP print and the US Personal Consumption Expenditure (PCE) Price Index for some meaningful impetus.
- The market attention will then shift to a slew of Japanese macro data, including Tokyo's Core CPI report, due for release during the Asian session on Friday.
USD/JPY might now aim to test a key pivotal support near the 152.00 mark
From a technical perspective, the overnight close below the 100-period Simple Moving Average (SMA) on the 4-hour chart and the subsequent downfall favors bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction and support prospects for a further USD/JPY depreciating move. Hence, some follow-through weakness towards the very important 200-day SMA, currently pegged around the 152.00 mark, looks like a distinct possibility. A convincing break below the latter could expose the monthly swing low, around the 151.30-151.25 region.
On the flip side, the 153.00 round figure might now act as an immediate hurdle ahead of the 153.25-153.30 region. A sustained strength beyond the latter might trigger a short-covering rally and allow the USD/JPY pair to reclaim the 154.00 mark. The upward trajectory could extend further towards the 154.60 intermediate hurdle en route to the 155.00 psychological mark and the next relevant hurdle near the 155.35-155.40 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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