- Japanese Yen attracts some follow-up buying amid fears of government intervention.
- Uncertainty over the BoJ’s rate hike plans and optimistic mood could limit the safe-haven JPY.
- Expectations of less aggressive Fed easing may underpin the USD and lend support to the USD/JPY pair.
The Japanese Yen (JPY) begins the new week on a slightly positive note against its US counterpart and looks to consolidate Friday’s modest recovery from the vicinity of the lowest level since early August. The JPY finds some support from the recent verbal intervention from Japanese authorities, although uncertainty over the timing and pace of future rate hikes by the Bank of Japan (BoJ) should limit any significant appreciative moves.
BoJ Governor Kazuo Ueda warned on Friday about the high uncertainty that still surrounds the country’s recovery prospects and stressed the need to be attentive to the impact of market volatility on the economy. This adds to Japanese Prime Minister Shigeru Ishiba’s surprise opposition to further rate hikes and suggests the BoJ will not rush to tighten policy ahead of Japan’s general election on October 27.
This, coupled with the prevailing risk-on environment, should limit the safe-haven JPY. Meanwhile, expectations that the Federal Reserve (Fed) will proceed with modest interest rate cuts over the next year are keeping US Treasury yields elevated and limiting the US dollar’s downward correction ( USD) from a maximum of more than two months. This could further weaken the underperforming JPY and support the prospects for buying to emerge at lower levels around the USD/JPY pair.
Daily Market Summary: Japanese Yen Finds Support on Intervention Fears, BoJ Uncertainty Likely to Cap Gains
- Japan’s top currency diplomat Atsushi Mimura warned against speculative trading and said on Friday that authorities are watching currency market movements with a high sense of urgency.
- Additionally, Japan’s Deputy Chief Cabinet Secretary Kazuhiko Aoki noted that it is important for currencies to move stably, reflecting economic fundamentals.
- The comments fueled speculation about possible government intervention to shore up the national currency and prop up the Japanese Yen at the start of a new week.
- Bank of Japan Governor Kazuo Ueda said on Friday that the economy was recovering moderately and that core inflation will likely gradually accelerate to the 2% target.
- Ueda added that the central bank should focus on the economic impact of unstable markets and risks from abroad, suggesting the BoJ was in no rush to raise interest rates later.
- Investors welcomed the launch of two financing schemes by the People’s Bank of China (PBOC) aimed at supporting the development of capital markets, boosting global stock markets.
- The Israeli military launched a series of airstrikes across Lebanon and also stepped up attacks in Gaza, raising the risk of further escalation of tensions in the Middle East.
- The 10-year US government bond yield remains above 4% amid expectations of a regular 25 basis point rate cut by the Federal Reserve in November.
- The US Dollar halts its corrective pullback from the highest level reached since early August last Thursday, which, in turn, could act as a tailwind for the USD/JPY pair.
Technical Outlook: USD/JPY could accelerate downward correction once horizontal support at 148.85 is broken
From a technical perspective, the oscillators on the daily chart remain in positive territory and advise caution before opening aggressive bearish bets. That said, weakness below the 149.00 level and the horizontal support at 148.85 could drag the USD/JPY pair further towards the 148.20 region. This is closely followed by the round figure of 148.00, below which the downward correction could extend further towards the 147.35-147.30 zone en route to levels below 147.00. That said,
On the upside, the 149.70-149.75 region now appears to act as an immediate hurdle ahead of the 150.00 psychological level and the 150.30 zone, or the monthly peak reached last week. Sustained strength beyond should pave the way for a move towards the August high, around the 150.85-150.90 area. Some follow-on buying will be seen as a new trigger for bullish traders and will allow the USD/JPY pair to reclaim the 152.00 level before targeting the next relevant hurdle near the 152.70-152.75 zone.
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.
