Japanese Yen hangs near one-week low against USD; focus remains on BoJ meeting
- The Japanese Yen ticks higher after upbeat domestic data, though it lacks follow-through.
- Concerns about Trump’s tariff plans and the risk-on mood cap gains for the safe-haven JPY.
- Traders look to Trump’s speech for a fresh impetus ahead of the BoJ decision on Friday.
The Japanese Yen (JPY) edges higher during the Asian session on Thursday following the better-than-expected release of Trade Balance data from Japan, though it remains close to a one-week low against its American counterpart touched the previous day. The prospects for an imminent interest rate hike by the Bank of Japan (BoJ) on Friday continue to underpin the JPY. Moreover, subdued US Dollar (USD) price action, amid bets that the Federal Reserve (Fed) will cut interest rates twice this year, cap the USD/JPY pair's recovery from over a one-month low touched on Tuesday.
The JPY bulls, however, seem reluctant and opt to wait on the sidelines ahead of the crucial two-day BoJ policy meeting starting this Thursday. Furthermore, concerns about US President Donald Trump's tariff plans and the risk-on mood might keep a lid on any further JPY appreciation. That said, the divergent BoJ-Fed policy expectations warrant some caution before confirming that the USD/JPY pair has formed a near-term bottom. Traders now look to Trump's speech at the World Economic Forum for some impetus ahead of the highly-anticipated BoJ decision on Friday.
Japanese Yen bulls are not ready to give up amid bets for an imminent BoJ rate hike
- The Japanese Yen ticked higher after government data released this Thursday showed that Japan recorded a trade surplus of ¥130.9 billion in December, compared to expectations for a deficit of ¥55 billion.
- The turnaround was driven chiefly by resilient exports, which grew more than expected, by the 2.8% YoY rate in December. This, however, marked a notable slowdown from the 3.8% rise seen in the prior month.
- Meanwhile, imports picked up after contracting by the 3.8% YoY rate in November and grew 1.8% last month, missing consensus estimates for a 2.6% rise and indicating that local demand remains subdued.
- Annual spring wage negotiations kicked off in Japan on Wednesday, with the leaders of the top business lobby and the biggest labor unions agreeing on the need for pay hikes for more workers amid soaring prices.
- The Bank of Japan, which is scheduled to announce its monetary policy decision on Friday, has repeatedly said that sustained and broad-based wage hikes are a prerequisite to raising short-term interest rates.
- The markets are pricing in over a 90% chance that the BoJ will raise interest rates at the end of the January 23-24 meeting, from 0.25% to 0.50%, which would be the highest since the 2008 global financial crisis.
- This marks a big divergence in comparison to market expectations that the Federal Reserve will lower borrowing costs at least two times by the end of this year amid signs of abating inflationary pressures in the US.
- Some follow-through uptick in the US Treasury bond yields assists the US Dollar in holding steady above the monthly low touched on Wednesday and acts as a tailwind for the USD/JPY pair amid the risk-on mood.
- Investors now look forward to the release of the US Weekly Initial Jobless Claims for some impetus ahead of US President Donald Trump's speech later today and the outcome of a two-day BoJ policy meeting on Friday.
USD/JPY technical setup supports prospects of a move beyond the 157.00 mark
From a technical perspective, spot prices earlier this week found decent support and bounced off the lower end of a multi-month-old ascending channel. The subsequent strength beyond the 156.00 mark and the 156.30-156.35 area favors bullish traders. Moreover, oscillators on the daily chart have again started gaining positive traction and support prospects for further gains. Hence, some follow-through move towards the 156.75-156.80 region, en route to the 157.00 round figure, looks like a distinct possibility. The latter should act as a key pivotal point, which if cleared decisively should pave the way for a further move up towards the 157.55 area, the 158.00 mark, the 158.35-158.40 region and the 159.00 neighborhood, or a multi-month top touched on January 10.
On the flip side, the 156.30-156.25 area now seems to protect the immediate downside ahead of the 156.00 mark. The next relevant support is pegged near the 155.55-155.50 area, below which the USD/JPY pair could accelerate the fall towards the 155.00 psychological mark, which now coincides with the lower boundary of the ascending channel. Some follow-through selling below the 154.80-154.75 region, or over a one-month low touched on Tuesday, will be seen as a fresh trigger for bearish traders and drag spot prices to the 154.00 round figure en route to mid-153.00s and the 153.00 mark.
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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