Japanese Yen hovers 150.00 against USD; downside potential seems limited
- The Japanese Yen attracts sellers for the second straight day amid sliding JGB yields.
- A further USD recovery from over a two-month low further lends support to USD/JPY.
- Bets that the BoJ will hike interest rates further should limit deeper losses for the JPY.
The Japanese Yen (JPY) drifts lower for the second straight day, which, along with a further US Dollar (USD) recovery from over a two-month low, lifts the USD/JPY pair back above the 150.00 psychological mark during the Asian session on Tuesday. Bank of Japan Governor Kazuo Ueda said last week that the central bank stands ready to increase government bond buying if long-term interest rates rise sharply. This triggers a corrective pullback in the Japanese government bond (JGB) yields and prompts some selling around the JPY. However, hawkish Bank of Japan (BoJ) expectations might continue to act as a tailwind for the JPY.
Investors seem convinced that the BoJ will hike interest rates further amid signs of broadening inflation in Japan. The bets were reaffirmed by the Services Producer Price Index (PPI) released from Japan earlier today. This, along with Japan's strong consumer inflation figures, supports prospects for further policy tightening by the BoJ and should help limit deeper JPY losses. Moreover, Friday's disappointing US PMIs, along with worries about the potential economic fallout from US President Donald Trump's import tariffs, might hold back the USD bulls from placing aggressive bets and cap any further gains for the USD/JPY pair.
Japanese Yen remains depressed as policymakers talk down JGB yields
- Bank of Japan Governor Kazuo Ueda issued a mild warning last Friday and said that the central bank could increase bond buying if abnormal market moves trigger a sharp rise in yields.
- Ueda's remarks dragged the yield on the benchmark Japanese government bond away from its highest level since November 2009 and weighed on the Japanese Yen for the second straight day.
- Some market players, however, expect that the 10-year JGB could rise to 1.5% in the coming weeks, with growing acceptance that the BoJ will hike rates further amid broadening inflation in Japan.
- The bets were lifted by Japan's strong consumer inflation figures released last week and the Services Producer Price Index (PPI), which rose 3.1% YoY in January and signaled persistent cost pressures.
- The recent downbeat US economic data raised doubts about consumer health and the growth outlook amid worries that US President Donald Trump's tariff plans could undermine domestic demand.
- The S&P Global's flash US PMIs pointed to a weaker expansion in overall business activity and the University of Michigan's US Consumer Sentiment Index dropped to a 15-month low in February.
- Federal Reserve officials, however, remain wary of future rate cuts. In fact, Chicago Fed President Austan Goolsbee said that the central bank needs more clarity on Trump's policies before going back to cut rates.
- This assists the US Dollar in building on the previous day's bounce from its lowest level since December 10 and continues to push the USD/JPY pair higher for the second successive day on Tuesday.
- Traders now look to the US macro data – Conference Board's Consumer Confidence Index and Richmond Manufacturing Index. This, along with Fed speaks, might influence the USD.
- The focus, however, will remain glued to the release of the US Personal Consumption Expenditure (PCE) Price Index on Friday, which could provide cues about the Fed's rate-cut path.
USD/JPY might struggle to move above the 150.90-151.00 pullback zone
From a technical perspective, any subsequent move-up could attract fresh sellers and remain capped near the 150.90-151.00 horizontal support breakpoint. A sustained strength beyond, however, might trigger a short-covering rally and lift the USD/JPY pair towards the 151.40 intermediate hurdle en route to the 152.00 mark. The momentum could extend further, though it runs the risk of fizzling out rather quickly near the 152.65 area, representing the very important 200-day Simple Moving Average (SMA).
On the flip side, the 149.65-149.60 area, or the Asian session low now seems to protect the immediate downside ahead of the 149.30 region and the 149.00 round figure. Some follow-through selling below the 148.65 zone, or the lowest level since December 2024 touched on Monday, would be seen as a fresh trigger for bearish traders. Given that oscillators on the daily chart are holding deep in negative territory, the USD/JPY pair might then decline further towards the 148.00 mark en route to the 147.45 region before eventually dropping to the 147.00 round figure.
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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