Japanese Yen bulls remain on the sidelines despite BoJ rate hike bets
- The Japanese Yen attracts some buyers on Thursday, albeit lacking bullish conviction.
- Rebounding US bond yields underpin the USD and offer support to the USD/JPY pair.
- Traders seem reluctant to place aggressive bets ahead of the US NFP report on Friday.
The Japanese Yen (JPY) edges higher against its American counterpart during the Asian session on Thursday and moves away from the weekly low touched on the previous day. Signs that the underlying inflation in Japan is gaining momentum continue to fuel expectations that the Bank of Japan (BoJ) will hike interest rates again in December. Adding to this, persistent geopolitical risks, trade war fears, and the overnight decline in the US Treasury bond yields further benefit the lower-yielding JPY.
That said, Wednesday's hawkish remarks by a slew of influential FOMC members, including Federal Reserve (Fed) Chair Jerome Powell, acts as a tailwind for the US bond yields and the US Dollar (USD). This, along with the prevalent risk-on environment, might keep a lid on any meaningful appreciation for the safe-haven JPY and lend some support to the USD/JPY pair. Traders might also refrain from placing aggressive directional bets ahead of the US Nonfarm Payrolls (NFP) report on Friday.
Japanese Yen draws some support from December BoJ rate hike bets
- Stronger Tokyo Consumer Price Index for November and Bank of Japan Governor Kazuo Ueda's hawkish remarks last week lifted bets for another interest rate hike in December.
- BoJ board member Toyoaki Nakamura said that he is not confident about the sustainability of wage growth and sees a chance that inflation may miss 2% from fiscal 2025 onward.
- Russia's Deputy Foreign Minister Sergei Ryabkov cautioned that Russia could escalate its military actions in Ukraine if the US and its allies fail to acknowledge its boundaries.
- Investors remain concerned that US President-elect Donald Trump's tariff plans would trigger the second wave of global trade wars and its effects on the global economy.
- The Institute for Supply Management’s (ISM) Services PMI dropped to a three-month low level of 52.1 in November, from 56.0 in the prior month and missing estimates.
- The benchmark 10-year US Treasury bond yield slipped on Wednesday and registered its lowest closing level since October 21, though the downside remains limited.
- The Federal Reserve's Beige Book showed on Wednesday that economic activity increased slightly in November as businesses grew more upbeat about demand prospects.
- St. Louis Fed President Alberto Musalem said that it might be possible to pause rate cuts at the upcoming meetings, but they are keeping all options open for the December meeting.
- Fed Chair Jerome Powell said the US central bank can take a little more cautious approach in cutting interest rates toward neutral as the economy remains in good shape.
- San Francisco Fed President Mary Daly reiterated that the central bank does not need to be urgent on rate cuts and there's a lot more work to do to achieve 2% inflation.
- This, along with speculations that Trump's policies will reignite inflation, triggers a modest bounce in the US bond yields and acts as a tailwind for the US Dollar.
- Traders now look to the release of the usual US Weekly Initial Jobless Claims. The focus, however, remains on the US Nonfarm Payrolls (NFP) report on Friday.
USD/JPY is likely to confront a stiff barrier and remain capped near 152.00
From a technical perspective, the USD/JPY pair showed resilience below the 100-day Simple Moving Average (SMA) earlier this week and the subsequent recovery from its lowest level since October 11 supports prospects for additional gains. That said, oscillators on the daily chart are holding in negative territory and are still far from being in the oversold zone. This, in turn, suggests that any further move up beyond the overnight swing high, around the 151.20-151.25 region, is likely to remain capped near the 152.00 mark. The latter coincides with the very important 200-day SMA and should act as a key pivotal point. A sustained strength beyond will suggest that the recent corrective decline from a multi-month high touched in November has run its course and shift the bias in favor of bullish traders.
On the flip side, weakness below the 150.00 psychological mark now seems to find decent support near the 149.55-149.50 horizontal zone. The next relevant support is pegged near the 149.00 mark ahead of the 100-day SMA, currently around the 148.80 region. A sustained break and acceptance below the latter will be seen as a fresh trigger for bearish traders and drag the USD/JPY pair to the 148.10-148.00 region en route to the 147.35-147.30 zone and 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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