- The Japanese Yen attracts buyers for the third consecutive day in the midst of global flight to security.
- The increase in geopolitical tensions weighs on the feeling of investors and enhances refuge assets.
- Divergent expectations of Boj’s policy and Fed exert additional pressure on the USD/JPY torque.
The Japanese Yen (JPY) advances more than a week in front of his US counterpart during Friday’s Asian session and receives support from a combination of factors. A greater escalation of geopolitical tensions in the Middle East weighs on the feeling of investors and increases the demand for traditional shelter assets, including JPY. Apart from this, the growing acceptance that the Bank of Japan (BOJ) will remain on the road to the normalization of monetary policy turns out to be another factor that contributes to the superior relative performance of the JPY.
However, a modest rebound of the US dollar (USD) from its lowest level since March 2022 helps the USD/JPY pair to reduce its strong losses intradicted to the region of 142.80-142.75. Any significant appreciation of the USD, however, seems elusive, since the signs of inflation cooling and a possible weakening in the labor market raised the bets for an imminent cut of interest rates by the Federal Reserve (FED) in September. This marks a significant divergence of the hard line expectations of the BOJ, which should continue to benefit the JPY of lower performance and limit any attempt to recover the USD/JPY torque.
The Japanese yen benefits from a greater climb of tensions in the Middle East and the expectations of a hard line box
- Israel launched a preventive attack against Iran. The Israeli Air Force carried out dozens of attacks in Iran, pointing to nuclear and missile sites, as well as military barracks. After the attack, the Israeli defense minister, Israel Katz, declared a special state of emergency in the country and warned that an attack with missiles and drones against Israel and its civilian population would soon occur.
- The US Secretary of State, Marco Rubio, said in a statement that Israel took unilateral action and that the US is not involved in attacks against Iran. Meanwhile, Iran’s Minister of Defense, Aziz Nasirzadeh, had threatened to attack US bases in the region if a conflict over his nuclear program. This increases the risk of a broader regional conflict and enhances the Japanese yen as a safe refuge.
- In the front -related front, US President Donald Trump said Wednesday that he will establish unilateral rates and notify commercial partners within two weeks. In addition, extended rates on Trump’s steel, currently in 50%, apply to a variety of appliances, including dishwasher, washing machines, refrigerators and more, adding a layer of uncertainty to markets.
- A Reuters survey indicated earlier this week that a slight majority of economists expects the Bank of Japan not to make another increase in interest rates this year. However, investors seem convinced that the BOJ could continue to press due to more strict monetary conditions and increase rates even more, since inflation in Japan has consistently exceeded the 2% target of the central bank for more than three years.
- In contrast, the operators increased the bets that the Federal Reserve would resume its cycle of rate cuts in September after the data published on Thursday aimed at signs of inflation cooling and a possible weakening in the labor market. The US Labor Statistics Office reported that the production price index remained moderate in May and rose 0.1% compared to the previous month, compared to a 0.2% drop in April.
- In the 12 months until May, the PPI advanced 2.6% after increasing 2.5% in April. A separate report showed that the initial weekly applications of unemployment in the US remained stable in 248K last week, while continuous requests jumped to 1,951 million, or the highest level since November 2021. This adds to a slight increase in US consumer prices, supporting the case for a greater relief of the monetary policy by the monetary policy by the monetary policy by the Fed monetary policy.
- The moderate perspective drags the US dollar at its lowest level since March 2022 during Friday’s Asian session and weighs strongly over USD/JPY torque. The operators now expect the preliminary publication of the Michigan consumer’s feeling index and inflation expectations. However, the approach will continue in the developments around Trump’s commercial policies and the conflict in the Middle East.
USD/JPY bassists could now expect a break below the horizontal support of 142.65 before making new bets
From a technical perspective, the failures of this week to find acceptance above the psychological brand of 145.00 and the subsequent fall favor the bassists of the USD/JPY in the midst of negative oscillators in schedules/daily graphics. However, it will still be prudent to wait for a continuation sale below 142.65 and the horizontal support of 142.35 before positioning for deeper losses. Cash prices could then weaken below the round figure of 142.00, towards the intermediate support of 141.65 en route to levels below 141.00.
On the contrary, a recovery beyond the peak of the Asian session, around the 143.50-143.55 area, will probably face a strong barrier near the 144.00 mark. A sustained strength beyond the latter could trigger a short coverage movement and allow the USD/JPY to rise to the 144.50 area on a route to the round figure of 145.00. The subsequent ascending movement could raise cash prices to the 145.45 area, or a maximum of two weeks reached Wednesday.
And in Japanese faqs
The Japanese Yen (JPY) is one of the most negotiated currencies in the world. Its value is determined in general by the march of the Japanese economy, but more specifically by the policy of the Bank of Japan, the differential between the yields of the Japanese and American bonds or the feeling of risk among the operators, among other factors.
One of the mandates of the Bank of Japan is the currency control, so its movements are key to the YEN. The BOJ has intervened directly in the currency markets sometimes, generally to lower the value of YEN, although it abstains often due to the political concerns of its main commercial partners. The current ultralaxy monetary policy of the BOJ, based on mass stimuli to the economy, has caused the depreciation of the Yen in front of its main monetary peers. This process has been more recently exacerbated due to a growing divergence of policies between the Bank of Japan and other main central banks, which have chosen to abruptly increase interest rates to fight against inflation levels of decades.
The position of the Bank of Japan to maintain an ultralaxa monetary policy has caused an increase in political divergence with other central banks, particularly with the US Federal Reserve. This favors the expansion of the differential between the American and Japanese bonds to 10 years, which favors the dollar against Yen.
The Japanese Yen is usually considered a safe shelter investment. This means that in times of tension in markets, investors are more likely to put their money in the Japanese currency due to their supposed reliability and stability. In turbulent times, the Yen is likely to be revalued in front of other currencies in which it is considered more risky to invest.
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.
