Japanese Yen remains on the back foot against USD; focus remains on Fed
- The Japanese Yen is undermined by concerns about the economic fallout from Trump's tariff.
- A positive risk tone also dents demand for the safe-haven JPY and lends support to USD/JPY.
- The USD bulls seem reluctant to place aggressive bets and opt to wait for the Fed decision.
The Japanese Yen (JPY) remains on the defensive against its American counterpart during the Asian session on Wednesday, though it lacks bearish conviction amid expectations of more interest rate hikes by the Bank of Japan (BoJ). Apart from this, the recent decline in the US Treasury bond yields, fueled by rising bets that the Federal Reserve (Fed) would keep cutting rates in 2025, should limit the downside for the lower-yielding JPY.
Meanwhile, concerns about the economic fallout from US President Donald Trump's threatened tariffs, along with a generally positive risk tone, undermine the safe-haven JPY. Adding to this, the overnight strong US Dollar (USD) positive move assists the USD/JPY pair to trade with a positive bias above mid-155.00s. Traders, however, might opt to wait on the sidelines ahead of the FOMC monetary policy decision, due to be announced later today.
Japanese Yen bulls seem reluctant amid Trump’s tariff threats, despite BoJ rate cut bets
- The Japanese Yen retreated sharply on Tuesday, from a six-week high touched the previous day, following fresh tariff threats from US President Donald Trump.
- Trump said late on Monday that he plans to impose duties on imported computer chips, pharmaceuticals, and metals to push companies to boost domestic production.
- The US Dollar staged a solid recovery from over a one-month low amid speculations that Trump's protectionist policies could reignite inflationary pressures.
- The US Census Bureau reported on Tuesday that Durable Goods Orders declined 2.2% in December, compared to a 2% fall in November and a 0.8% rise expected.
- The Conference Board's (CB) Consumer Confidence Index dropped to 104.1 in January from 109.5 previous, while the Present Situation Index fell to 134.3.
- Minutes of the December Bank of Japan meeting released this Wednesday showed that members emphasized the need for cautious monetary policy adjustments.
- Meanwhile, investors are more confident that the BoJ will continue its move towards normalization and deliver additional interest rate hikes in 2025.
- Moreover, hopes that Japan's spring wage negotiations will result in strong hikes again this year, which should allow the BoJ to tighten its policy further.
- In contrast, market participants have been pricing in the possibility that the Federal Reserve will lower borrowing costs twice by the end of this year.
- Investors await the outcome of a two-day FOMC meeting, which will play a key role in driving the USD and provide a fresh impetus to the USD/JPY pair.
USD/JPY could attract sellers at higher levels and remain capped near the 156.70 hurdle
This week's breakdown below a multi-month-old ascending channel favors bearish traders amid slightly negative oscillators on the daily chart. Hence, any subsequent move up beyond the 156.00 mark could be seen as a selling opportunity and remain capped near the 156.60-156.70 supply zone. Some follow-through buying, however, could trigger a short-covering rally and lift the USD/JPY pair beyond the 157.00 mark, towards the 157.45 hurdle. The momentum could extend further towards the 158.00 mark en route to the 158.85-158.90 region, or a multi-month top touched on January 10.
On the flip side, the 155.00 psychological mark now seems to protect the immediate downside ahead of the 154.55-154.50 horizontal zone and the 154.00 round figure. This is closely followed by the weekly swing low, around the 153.70 area touched Monday, below which the USD/JPY pair could accelerate the fall further towards the 153.30 support before eventually dropping to 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.
Artigos Recomendados
