- The Japanese Yen fails to capitalize on the modest gains driven by the BoJ’s hawkish actions.
- Uncertainty over the BoJ rate hike and risk-on momentum weigh heavily on the JPY.
- US election results trigger strong USD rally and push USD/JPY higher.
The Japanese Yen (JPY) hits a two-week high against its US counterpart during the Asian session on Wednesday after Bank of Japan (BoJ) minutes showed the central bank will continue to raise interest rates if economic forecasts and prices are met. However, investors seem convinced that Japan’s political landscape could make it difficult for the BoJ to tighten its monetary policy further. On top of this, a generally positive risk tone undermines the JPY as a safe haven.
This, along with the emergence of strong buying of the US Dollar (USD), driven by initial surveys showing the balance tilting towards former President Donald Trump, triggers a nice intraday recovery of almost 150 pips for the USD/JPY pair. . As surveys continue to come in, markets are expected to react sharply in one direction or another. This, in turn, warrants some caution for aggressive traders before positioning for a firm near-term direction for the currency pair.
Daily Market Summary: Japanese Yen Pressured by Resurgent USD Demand
- Minutes from the Bank of Japan’s September policy meeting showed the central bank plans gradual increases in policy rates, although it remains cautious about economic uncertainties abroad, especially the US.
- This adds to BoJ Governor Kazuo Ueda’s hawkish comments last week and keeps the door open for additional rate hikes, which in turn provides a modest boost to the Japanese Yen during the Asian session.
- The initial market reaction, however, turns out to be short-lived and quickly fades amid doubts about the BoJ’s ability to further tighten its monetary policy in the face of political uncertainty in Japan.
- The US Dollar recovers across the board after exit polls indicate an early lead in Georgia (swing state) for Republican candidate Donald Trump, triggering a sharp rise of almost 150 pips for the USD/JPY pair.
- The increasing odds that Trump will win the election are fueling speculation about the launch of potentially inflation-causing tariffs, which, along with concerns about deficit spending, are pushing US Treasury yields sharply higher.
- The 10-year US government bond yield soars to its highest level since July, contributing to the strong supply tone around the USD and diverting flows from the lower-yielding JPY.
Technical Outlook: USD/JPY could attempt to challenge multi-month high around 153.85-153.90 area
From a technical perspective, sustained strength beyond the 153.00 round figure could lift the USD/JPY pair to the 153.35-153.40 resistance zone en route to the 153.85-153.90 region, or a three-month peak touched by last week. Some follow-on buying will be seen as a new trigger for bullish traders. With the oscillators on the daily chart remaining in positive territory, spot prices could then rise to the next relevant hurdle near the 154.60-154.70 zone before attempting to reclaim the psychological mark of 155.00.
On the contrary, the 152.30 zone now appears to protect the immediate decline before the 152.00 mark and the low of the Asian session, around the 151.30-151.25 region. This is followed by the round figure of 151.00, below which the USD/JPY pair could slide towards the resistance breakout point of the 100-day SMA, now converted into support, around region of 150.25. Some follow-through selling, leading to a break below the psychological mark of 150.00, will change the short-term bias in favor of bearish traders and pave the way for deeper losses.
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.
