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Japanese Yen Hits Three-Month Highs Against Dollar Amid BoJ Reversal Expectations

  • The Japanese Yen sees aggressive buying on Thursday and hits three-month highs against the US Dollar.
  • The BoJ governor analyzed options for a possible turn from negative interest rates and boosted the Japanese Yen.
  • A more sour risk tone further benefits the safe-haven Yen and puts strong bearish pressure on USD/JPY.

The Japanese Yen (JPY) strengthens overall and rallies around 225 pips against the US Dollar (USD), hitting a three-month high during the early part of the European session on Thursday. Investors have been quickly pricing in the possibility that the Bank of Japan (BoJ) will remove the negative interest rate regime sooner than expected. The Bank of Japan has conducted a special survey among market participants to analyze its impact and side effects. In addition, the visit of the Governor of the BoJ, Kazuo Ueda, to the office of the Prime Minister, Fumio Kishida, raised expectations of a major change in monetary policy by the Japanese central bank and provided a strong boost to the Yen.

Instead, the Federal Reserve (Fed) is expected to begin cutting interest rates from March 2024, amid easing inflationary pressures and signs that the historically tight labor market is easing. This, in turn, triggers a corrective decline in the Dollar from the two-week high reached on Wednesday, despite a nice bounce in US Treasury yields. At the same time, weakening sentiment Due to risk, it is considered another factor that benefits the Japanese Yen as a safe haven currency. This, in turn, drags the USD/JPY pair close to the psychological level of 145.00 and supports the prospects of a new depreciation move. The release of weekly initial jobless claims data in the United States could boost the pair during the American session.

Daily Market Summary: Japanese Yen Gets Strong Boost on Rising Expectations of Soon Bank of Japan Monetary Policy Change

  • Signs that the US labor market is easing raise fears of an economic slowdown and weigh on investor sentiment, benefiting the safe-haven Japanese Yen.
  • The U.S. Department of Labor reported Tuesday that job openings fell by 617,000 positions to 8.73 million in October, their lowest level in two and a half years.
  • The ADP report showed that US private sector employers added just 103,000 jobs in November, down from 106,000 the previous month, which had been revised downward.
  • The readings reaffirmed market expectations for an imminent change in the Federal Reserve’s policy stance and expectations for a 25 basis point rate cut at the March policy meeting.
  • The key US employment data series will continue on Thursday and Friday with the release of weekly initial jobless claims and nonfarm payrolls, respectively.
  • Israeli forces stormed the main southern Gaza city on Tuesday in the most intense day of combat in ground operations against Hamas militants, worsening the humanitarian crisis.
  • Mixed Chinese trade balance data showed imports unexpectedly fell 0.6% in November, stoking concerns about weak domestic demand amid recession risk.
  • Bank of Japan Governor Kazuo Ueda told Prime Minister Kishida that the central bank hopes to see whether wages will rise sustainably, whether wage increases will push up prices for services and whether demand will be strong.
  • Ueda declared this Thursday that accommodative monetary policy and stimulus measures are supporting the Japanese economy.
  • Ueda added that his explanation of monetary policy to Prime Minister Kishida included the prospects for wage hikes next year, reaffirming bets that the central bank will move away from the negative interest rate regime.
  • Ueda previously stated that they have not yet reached a situation where they can achieve the price target sustainably and stably and with sufficient certainty.

Technical Analysis: USD/JPY finds some support near 145.00 level, not out of the woods yet

From a technical standpoint, this week’s repeated failures to get back above the breakout point of the 100-day SMA support-turned-resistance, currently around the 147.45 area, and The subsequent decline favors the bears. Furthermore, the oscillators on the daily chart remain in negative territory and are still far from the oversold zone. This, in turn, validates the negative near-term outlook for the USD/JPY pair.

Furthermore, a break below the 38.2% Fibonacci retracement of the July-October rally could be seen as a new trigger for the bears and supports the prospects for further losses. Some follow-through selling below the 145.00 level could then drag the USD/JPY to the 50% Fibonacci, around the 144.55-144.50 region.

On the other hand, the recovery above the 145.50 area could extend, although it is more likely to attract new sellers near the 146.00 area. This, in turn, should cap the USD/JPY pair near the 146.20 region, or the previous weekly low. However, if the uptrend continues, a short covering rally could occur.

Quote of the Japanese Yen today

Below is the evolution of the Japanese Yen (JPY) against the major currencies today.

USD EUR GBP CAD AUD JPY NZD CHF
USD 0.07% 0.11% 0.08% 0.35% -0.27% 0.30% 0.12%
EUR -0.07% 0.02% 0.01% 0.28% -0.36% 0.23% 0.05%
GBP -0.10% -0.03% -0.01% 0.26% -0.37% 0.20% 0.02%
CAD -0.08% -0.02% 0.01% 0.27% -0.35% 0.21% 0.03%
AUD -0.35% -0.29% -0.26% -0.27% -0.62% -0.06% -0.24%
JPY 0.27% 0.36% 0.37% 0.34% 0.61% 0.61% 0.39%
NZD -0.30% -0.23% -0.21% -0.22% 0.06% -0.57% -0.18%
CHF -0.12% -0.05% -0.02% -0.03% 0.23% -0.38% 0.18%

The heat map shows the percentage changes of the major currencies against each other. The base currency is chosen in the left column, while the quote currency is chosen in the top row. For example, if you choose the euro in the left column and scroll down the horizontal line to the Japanese yen, the percentage change that appears in the box will represent EUR (base)/JPY (quote).

Frequently Asked Questions about the Japanese Yen

What factors determine the price of the Japanese Yen?

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.

How do decisions by the Bank of Japan affect the Japanese Yen?

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.

How does the spread between Japanese bond yields and US bond yields affect the Japanese Yen?

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.

How does general risk sentiment influence the Japanese 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

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