Japanese Yen Recovers Part of Overnight Losses Against USD, Rally Looks Limited

  • The Japanese Yen rises against the USD, although it lacks bullish conviction.
  • Uncertainty over the BoJ’s rate hike plan and a positive risk tone limit the JPY.
  • Expectations of smaller Fed rate cuts could support the USD and limit USD/JPY losses.

The Japanese Yen (JPY) rises against its US counterpart during the Asian session on Thursday and reversed some of the overnight losses, once again approaching the lowest level since early August. However, any significant JPY appreciation still appears elusive amid uncertainty over the Bank of Japan’s (BoJ) rate hike path. A drop in Japan’s exports for the first time in 10 months raised concerns about weak global demand. This adds to surprise opposition to further rate hikes from Japan’s Prime Minister Shigeru Ishiba and could complicate the BoJ’s plans to exit years of ultra-loose monetary policy.

Apart from this, the prevailing risk environment could help limit the upside of the JPY as a safe haven. Furthermore, expectations that the Federal Reserve (Fed) will proceed with modest interest rate cuts over the next year continue to act as a tailwind for US Treasury yields and support the US dollar ( USD) well supported near its highest level in more than two months. This could further weaken the underperforming JPY and support the prospects for some buying to emerge at lower levels around the USD/JPY pair. Traders now await US macroeconomic releases for fresh impetus later this Thursday.

Daily Market Summary: Japanese Yen May Struggle to Consolidate Strength Amid BoJ Rate Hike Uncertainty

  • A slim majority of economists expect the Bank of Japan will not raise interest rates again this year amid uncertainty over the preference of the new policy direction for monetary policy, according to a Reuters poll.
  • Data released by Japan’s Finance Ministry on Thursday showed total exports in September fell 1.7% from a year earlier, compared with a revised 5.5% rise in the previous month and below expectations. consensus estimates.
  • Weak demand in China, Japan’s largest trading partner, and slowing growth in the US, coupled with the recent appreciation of the JPY following the BoJ’s unexpected rate hike in late July, reduced the value of exports.
  • This could further complicate the BoJ’s rate hike plans and limit any significant JPY appreciation move, although lingering geopolitical risks stemming from ongoing conflicts in the Middle East could offer support.
  • The United Nations (UN) said Israeli forces have fired on its peacekeeping position, forced entry into a base, halted a critical logistics movement and wounded more than a dozen of its troops in the southern Lebanon.
  • According to a source familiar with the matter, Israel’s plan for a counterattack in response to Iran’s Oct. 1 attack is ready, raising the risk of a further escalation of tensions in the Middle East and a broader regional war.
  • The US dollar rose to its highest level since early August on Wednesday amid growing expectations for less aggressive easing by the Federal Reserve and bets on a 25 basis point rate cut at the November meeting.
  • The 10-year US government bond yield fell to a more than one-week low on Wednesday, although it defends the 4.0% threshold, which favors USD bulls and should offer support to the USD/JPY pair.
  • Traders look to the US economic docket, which includes the release of monthly Retail Sales, weekly Initial Jobless Claims and the Philadelphia Fed Manufacturing Index, to gain fresh momentum later in the session. American.

Technical Outlook: USD/JPY consolidates in known range before next move higher, move beyond 150.00 expected

From a technical perspective, the USD/JPY pair has been oscillating in a known range since the beginning of this week. In the context of the recent rise from a 14-month low hit in September, this could still be categorized as a bullish consolidation phase. Furthermore, the oscillators on the daily chart remain in positive territory and are still far from being in the overbought zone, supporting the prospects of an eventual breakout to the upside. That said, it will still be prudent to wait for sustained strength above the psychological level of 150.00 before opening new bullish positions. Spot prices could then accelerate the move towards the August monthly high, around the 150.85-150.90 region. Some continuation buying beyond the round figure of 151.00 will be seen as a new trigger for bullish traders and pave the way for further appreciation in the short term.

On the other hand, the 149.00 level, which represents the lower limit of the short-term trading range, could continue to protect the immediate decline. A convincing break below has the potential to drag the USD/JPY to the next relevant support near the 148.55 region en route to the round 148.00 figure and last week’s low, around the 147.35-147.30 zone. . The latter is followed by the 147.00 level, which if broken decisively, will suggest that the recent move higher seen over the last month or so has come to an end and will prompt aggressive technical selling.

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

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