Japanese Yen trims a part of overnight strong gains against USD, to five-week top
- The Japanese Yen retreats from over a one-month high touched against the USD on Wednesday.
- December BoJ rate hike bets, trade war jitters and geopolitical risks might lend support to the JPY.
- The recent decline in the US bond yields could undermine the USD and cap the upside for USD/JPY.
The Japanese Yen (JPY) weakens slightly against its American counterpart during the Asian session on Thursday and erodes a part of the recent strong gains to a five-week top touched the previous day. In the absence of a fresh fundamental catalyst, the intraday JPY slide is more likely to remain limited amid speculation that the Bank of Japan (BoJ) may hike interest rates again in December. Furthermore, US President-elect Donald Trump’s tariff threats and geopolitical risks could underpin the safe-haven JPY.
Meanwhile, traders have been dialling back on the so-called "Trump trades" following the nomination of Scott Bessent as the US Treasury Secretary. Meanwhile, Wednesday's US macro data did little to temper market expectations that the Federal Reserve (Fed) will lower borrowing costs by 25 basis points in December. This led to a further decline in the US Treasury bond yields, which dragged the US Dollar (USD) to a two-week low and could benefit the lower-yielding JPY ahead of Tokyo inflation data on Friday.
Japanese Yen bulls look to seize control amid trade war fears and hopes for a BoJ December rate hike
- Japan’s stronger Consumer Price Index and steady corporate service inflation reaffirmed Bank of Japan Governor Kazuo Ueda's view that the economy was progressing towards sustained wages-driven inflation.
- This keeps the door open for another BoJ interest rate hike in December, which, along with trade war jitters, lifted the safe-haven Japanese Yen to a five-week high against its American counterpart on Wednesday.
- The flight to safety and expectations that Scott Bessent – Trump's US Treasury secretary nominee – will restrain budget deficits dragged the benchmark 10-year US Treasury yields to a level not seen in a month.
- The US Dollar fell to a two-week low amid some follow-through profit-taking and failed to gain any respite from Wednesday's US macro data, which underscored the US economic resilience and a solid labor market.
- The Bureau of Economic Analysis reported that the economy expanded steadily in the third quarter, by a 2.8% annualized pace – matching the first estimate – and consumer spending rose 3.5% – the most this year.
- Meanwhile, data released by the US Department of Labor showed that the number of individuals filing new applications for unemployment insurance fell to 213K for the week ending November 22 from 215K prior.
- Separately, Durable Goods Orders climbed 0.2% in October as compared to the 0.4% decline (revised from -0.8%) recorded in the previous month and was worse than the consensus estimates for an increase of 0.5%.
- Furthermore, the Personal Consumption Expenditures (PCE) Price Index rose to 2.3% on a yearly basis in October from 2.1% in September and the core gauge edged higher from 2.7% to 2.8% during the reported month.
- The data did little to bolster the case for the Federal Reserve to ease again next month, although market participants are pricing in over a 65% chance of another 25-basis points rate cut at the December FOMC meeting.
- However, expectations that Trump's expansionary policies will boost inflation and limit the scope for the Fed to cut rates further revive the USD demand and lend some support to the USD/JPY pair on Thursday.
- Trading volumes are expected to remain thin on the back of the Thanksgiving Day holiday in the US, warranting some caution for aggressive traders ahead of the Tokyo consumer inflation figures on Friday.
USD/JPY seems vulnerable below 200-day SMA; bearish confirmation below 38.2% Fibo. level
The overnight breakdown below the very important 200-day Simple Moving Average (SMA) could be seen as a key trigger for bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction and support prospects for further USD/JPY depreciation. That said, a modest recovery from the vicinity of the 38.2% Fibonacci retracement level of the September-November rally warrants some caution. Any further move up, however, is more likely to remain capped near the 152.00 mark (200-day SMA), above which spot prices could climb to the 152.60 area, en route to the 153.00 mark and the 153.30 horizontal barrier.
On the flip side, the overnight swing low, around the 150.45 area, closely followed by the 150.20-150.15 region (38.2% Fibo. level) and the 150.00 psychological mark now seem to act as immediate support levels. A convincing break below the latter has the potential to drag the USD/JPY pair to the 149.40-149.35 intermediate support en route to the 149.00 round figure and the 50% retracement level, around the 148.25-148.20 zone.
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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