Japanese Yen stands firm near a multi-month high against a broadly weaker USD
- The Japanese Yen continues to be underpinned by increasing bets for more BoJ rate hikes.
- Trade tariff jitters and the risk-off mood further seem to underpin demand for the safe-haven JPY.
- Expectations for further policy easing by the Fed weigh on the USD and the USD/JPY pair.
The Japanese Yen (JPY) remains on the front foot against a broadly weaker US Dollar (USD) and keeps the USD/JPY pair close to its lowest level since early October touched on Thursday. Persistent speculation that the Bank of Japan (BoJ) will continue to raise interest rates has been exerting upward pressure on Japanese government bond (JGB) yields. The resultant narrowing of the rate differential between Japan and other countries continues to act as a tailwind for the lower-yielding JPY.
Meanwhile, the uncertainty surrounding US President Donald Trump's trade policies and their impact on global economic growth continue to weigh on investors' sentiment. This is evident from a weaker tone around the equity markets and turns out to be another factor backing the safe-haven JPY. The USD bears, however, seem reluctant to place fresh bets and opt to wait for the release of the US Nonfarm Payrolls (NFP) report, which, in turn, limits losses for the USD/JPY pair.
Japanese Yen remains well supported by hawkish BoJ expectations and rising trade tensions
- Bank of Japan Deputy Governor Shinichi Uchida said earlier this week that the central bank was likely to raise interest rates at a pace in line with dominant views among financial markets and economists.
- Moreover, a global sell-off in bonds contributes to the upswing in the benchmark 10-year Japanese government bond yield, to its highest level since June 2009, and continues to underpin the Japanese Yen.
- Investors remain on the sidelines and keenly await more clarity on US President Donald Trump's trade policies, especially after another U-turn on the recently imposed tariffs on Mexico and Canada.
- Trump on Thursday exempted goods from both Canada and Mexico that comply with the US–Mexico–Canada Agreement for a month from the steep 25% tariffs that he had imposed earlier this week.
- Meanwhile, worries that Trump's trade tariffs could slow the US economic growth in the long run continue to fuel speculation that the Federal Reserve will resume cutting interest rates as soon as May.
- Philadelphia Fed President Patrick Harker said that trouble may be brewing for the US economy which is in good shape but showing signs of stress in the consumer sector and risks to the inflation outlook.
- This, to a larger extent, overshadows data showing that the US Initial Jobless Claims fell more than expected, to 221K during the week ended March 1 and dragged the US Dollar to a multi-month trough.
- Atlanta Fed President Raphael Bostic noted that the US economy is in an incredible state of flux and it’s hard to know where things will land. The central bank needs to be mindful of any changes that impact prices and employment.
- Fed Governing Board Member Christopher Waller said he leans strongly against a rate cut at the March meeting, although he reckons cuts later in the year remain on track if inflation pressures continue to abate.
- Investors currently see negligible odds of a March cut, remain divided over the May meeting, and are pricing in a rate cut at the June FOMC meeting. The Fed is expected to lower borrowing costs again in September.
- Traders now look forward to the release of the US Nonfarm Payrolls (NFP) report, which is expected to show that the economy added 160K new jobs in February and the Unemployment Rate held steady at 4%.
USD/JPY might consolidate before the next leg down; bearish potential remains intact
From a technical perspective, this week's breakdown below the 148.70-148.65 horizontal support is seen as a key trigger for bearish traders. That said, the Relative Strength Index (RSI) on the daily chart has moved on the verge of breaking into the oversold territory and warrants some caution. Hence, it will be prudent to wait for some near-term consolidation or a modest bounce before positioning for an extension of the USD/JPY pair's two-month-old downtrend.
In the meantime, the aforementioned support breakpoint, around the 148.65-148.70 region, could cap any attempted recovery. This is closely followed by the 149.00 round figure, above which a bout of a short-covering move has the potential to lift the USD/JPY pair towards the 150.00 psychological mark. The momentum could extend towards the 150.60 intermediate hurdle en route to the 151.00 mark, though it is likely to remain capped near the 151.30 region, or the monthly peak.
On the flip side, the multi-month low, around the 147.30 area touched on Thursday, now seems to act as immediate support ahead of the 147.00 mark. Some follow-through selling could expose the next relevant support near the 146.40 region before the USD/JPY pair eventually drops to the 146.00 round figure en route to the 145.60-145.50 zone and the 145.00 psychological 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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