- The Japanese Yen remains pressured by reduced expectations of a BoJ rate hike in December.
- The recent rise in US bond yields and a positive risk tone also appear to weaken the JPY.
- Investors, however, are reluctant ahead of this week’s crucial FOMC/BoJ monetary policy meetings.
The Japanese Yen (JPY) remains on the defensive against its US counterpart during the Asian session on Tuesday amid growing conviction that the Bank of Japan (BoJ) will likely keep interest rates unchanged this week. Furthermore, the recent rise in US Treasury yields, driven by expectations of a hawkish interest rate cut by the Federal Reserve (Fed), is seen as another factor weighing on the underperforming JPY.
Apart from this, a generally positive risk tone undermines demand for the safe-haven JPY, although a modest decline in the US Dollar (USD) limits the upside of the USD/JPY pair. Traders also appear reluctant to take aggressive directional bets and could opt to stay on the sidelines ahead of key risks from this week’s central bank events. The US central bank is scheduled to announce its monetary policy decision on Wednesday, followed by the BoJ on Thursday.
Japanese Yen bears remain in control amid expectations BoJ will maintain status quo
- Expectations that the Bank of Japan will keep interest rates unchanged at the end of a two-day meeting on Thursday continue to weaken the Japanese Yen and lift the USD/JPY pair to a three-week high on Monday.
- Japan’s Economy Minister Ryosei Akazawa said Tuesday that the BoJ and the government will work together to carry out appropriate monetary policy and that the central bank should handle the details of monetary policy.
- The yield on the benchmark 10-year U.S. government bond rose to its highest level since Nov. 22 in reaction to data showing that much of the U.S. economy expanded at the fastest pace in more than three years.
- The US S&P Global services PMI rose from 56.1 to 58.5 in December, the highest level in 38 months, and the composite PMI soared from 54.9 in November to 56.6, or a 33-month high.
- This overshadowed a drop in the US manufacturing PMI to a three-month low of 48.3 in December and reaffirmed market expectations that the Federal Reserve will likely signal a slower pace of policy easing going forward.
- According to CME Group’s FedWatch tool, markets have fully priced in the Fed to deliver a 25 basis point rate cut on Wednesday, keeping US Dollar bulls on the defensive and capping the USD/JPY pair.
- Traders now await the release of monthly US retail sales data, which, together with US bond yields, will boost demand for the USD and produce short-term opportunities around the currency pair.
- However, the focus will remain on the outcome of the highly anticipated FOMC meeting on Wednesday and the crucial BoJ decision on Thursday, which should provide fresh directional impetus to the JPY.
USD/JPY looks set to reclaim the psychological mark of 155.00 as long as it remains above the 61.8% Fibo level.
From a technical perspective, Monday’s break through the 61.8% Fibonacci retracement level of the November-December decline from a multi-month peak and acceptance above the 154.00 round figure could be seen as a key trigger for the bulls. Furthermore, the oscillators on the daily chart have started to gain positive traction and support the prospects for further appreciation of the USD/JPY pair. Therefore, some follow-up buying beyond the overnight high, around the 154.45-154.50 area, should pave the way for a move towards recovery of the 155.00 psychological mark. The momentum could extend further towards the next relevant hurdle near the mid-155.00 zone en route towards the 156.00 mark and the 156.25 resistance zone.
On the other hand, the breakout point of the 61.8% Fibo resistance, around the 153.65 area, now appears to protect the immediate decline before the overnight low, around the 153.35 region. This is closely followed by the 153.00 mark, below which the USD/JPY pair could accelerate the decline towards the all-important 200-day SMA pivot support near the 152.10-152.00 region. . A convincing break below the latter could change the bias in favor of the bears and drag spot prices to the round figure of 151.00 en route towards the psychological mark of 150.00
The Japanese Yen FAQs
The Japanese Yen (JPY) is one of the most traded currencies in the world. Its value is determined broadly by the performance of the Japanese economy, but more specifically by the policy of the Bank of Japan, the differential between the yields of Japanese and US bonds or the risk sentiment among traders, among other factors.
One of the mandates of the Bank of Japan is currency control, so its movements are key for the Yen. The BoJ has intervened directly in currency markets on occasion, usually to lower the value of the Yen, although it often refrains from doing so due to the political concerns of its major trading partners. The BoJ’s current ultra-loose monetary policy, based on massive stimulus to the economy, has caused the depreciation of the Yen against its main currency pairs. This process has been exacerbated more recently by a growing policy divergence between the Bank of Japan and other major central banks, which have opted to sharply raise interest rates to combat decades-old levels of inflation.
The Bank of Japan’s ultra-loose monetary policy stance has led to increased policy divergence with other central banks, particularly the US Federal Reserve. This favors the widening of the spread between US and Japanese 10-year bonds, which favors the Dollar against the Yen.
The Japanese Yen is often considered 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. In turbulent times, the Yen is likely to appreciate against other currencies that are considered riskier to invest in.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
