- The Japanese Yen gains positive traction and draws support from a combination of factors.
- An unexpected drop in Japan’s unemployment rate and intervention fears support the JPY.
- Uncertainty over the BoJ rate hike should cap gains ahead of this week’s central bank risk event.
The Japanese Yen (JPY) strengthened a bit against its US counterpart during the Asian session on Tuesday and moved away from a nearly three-month low hit the previous day. An unexpected drop in Japan’s unemployment rate during September pointed to tighter conditions in the labor market, which could boost consumer spending and demand-driven inflation. Added to this are comments from Japan’s Finance Minister Katsunobu Kato, which revived fears of possible government intervention and offered support to the JPY. This, along with the subdued US Dollar (USD) price action, puts some downward pressure on the USD/JPY pair.
Meanwhile, the leader of Japan’s Democratic People’s Party (DPP), Yuichiro Tamaki, opposed further rate hikes from the Bank of Japan (BoJ). In addition to this, a positive risk tone should keep any significant appreciation of the safe-haven JPY at bay. Additionally, the recent rise in US Treasury yields, driven by bets of less monetary policy easing from the Federal Reserve (Fed) and concerns about deficit spending after the election in the US, it should help cap the underperforming JPY. Traders could also refrain from placing aggressive directional bets ahead of the BoJ meeting and major US macroeconomic releases this week.
Daily Market Summary: Japanese Yen Draws Some Support from Upbeat Domestic Data and Intervention Fears
- According to a report released by Japan’s Statistics Bureau on Tuesday, the unemployment rate fell from 2.5% previously to 2.4% in September and the employment-to-applicant ratio rose to 1.24.
- The data reflects strong demand for labor and supports the prospects for rising wages, which could lead to higher inflation and should allow the Bank of Japan to raise interest rates again.
- Japan’s Finance Minister Katsunobu Kato said he is closely watching currency market movements, including those driven by speculators, with a heightened sense of vigilance, reigniting fears of intervention.
- Japan’s Prime Minister Shigeru Ishiba is seeking a coalition with the Democratic People’s Party (DPP) after failing to retain a majority in lower house elections over the weekend.
- DPP leader Yuichiro Tamaki said the BoJ should avoid a big policy shift now that real wages are still stagnant and wants policymakers to examine whether real wages turn stably positive by guiding policy. fiscal and monetary.
- US Treasury yields retreat further from a multi-month high and keep US Dollar bulls on the defensive below the highest level since July 30, putting pressure on the USD pair /JPY.
- Recent upbeat US macroeconomic data dampened hopes for more aggressive easing from the Federal Reserve and should act as a tailwind for US bond yields amid spending concerns deficit after the elections in the US.
- With the US presidential election approaching, the latest poll indicates a close race to the White House between Vice President Kamala Harris and Republican nominee Donald Trump.
- Traders now look to Tuesday’s US economic docket, including the Conference Board Consumer Confidence Index and the Job Openings and Labor Turnover (JOLTS) report, for a near-term boost.
- However, the focus will be on the BoJ decision on Thursday and on key US macroeconomic data: the advanced estimate of third quarter GDP, the Personal Consumption Expenditure (PCE) Price Index and the report of Non-Farm Payrolls (NFP).
Technical Outlook: USD/JPY correction could be seen as a buying opportunity and is more likely to remain limited
From a technical perspective, last week’s breakout through the 150.65 confluence – comprising the 100-day SMA and the 50% Fibonacci retracement level of the July-September decline – is seen as a new trigger for the bulls. That said, the overnight failure to find acceptance or build on momentum beyond the 61.8% Fibonacci level warrants some caution. Furthermore, the Relative Strength Index (RSI) on the daily chart remains close to the overbought zone, making it prudent to wait for a short-term consolidation or further pullback before positioning for further gains.
Any subsequent decline, however, will likely attract some buyers and remain capped near the overnight low, around the 152.65 region. Some follow-through selling, however, could drag the USD/JPY pair towards the 152.00 mark en route to the 151.45 support and the 151.00 mark. The downward trajectory could further extend towards challenging the resistance confluence of 150.65, which should now act as a key pivot point and a solid foundation for spot prices.
On the other hand, the 154.00 mark could offer some resistance before the 154.35-154.40 supply zone. Some follow-through buying should pave the way for a move towards recovering the psychological mark of 155.00, above which the USD/JPY pair looks set to test the late July high, around the 155.20 region.
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.
