- The Japanese Yen rises in reaction to an upward revision to Japan’s third quarter GDP.
- The recent decline in US bond yields weakens the USD and also benefits the JPY.
- Doubts about the BoJ’s ability to raise interest rates limit the JPY’s rise.
The Japanese Yen (JPY) begins the new week on a positive note and is supported by a combination of factors, although upside potential appears limited. Government data released today showed Japan’s economy expanded at a faster pace than initially estimated in the third quarter. In addition to this, geopolitical tensions and concerns over US President-elect Donald Trump’s impending trade tariffs offer support to the JPY as a safe haven.
Meanwhile, the recent decline in US Treasury yields contributes to the relative performance of the JPY against its US counterpart and keeps the USD/JPY pair depressed below the psychological level of 150.00 during the Asian session. That said, the market split over whether the Bank of Japan (BoJ) will raise interest rates at its December meeting could restrain JPY bulls from placing aggressive bets and limit the currency pair’s losses.
The Japanese Yen is supported by a combination of factors; bulls lack conviction
- Japan’s third quarter GDP was revised to show growth of 0.3% compared to the 0.2% originally estimated. In annual terms, the economy expanded 1.2%, above previous estimates of 0.9%.
- The annual rate marks a sharp slowdown from the 2.2% increase in the previous quarter, while sluggish private consumption suggests the momentum for wage increases is losing steam.
- This, in turn, raises questions about whether the Bank of Japan has enough room to raise interest rates and does not help the Japanese Yen consolidate a modest intraday rally on Monday.
- The US Nonfarm Payrolls (NFP) report released on Friday revealed that the economy added 227,000 jobs in November compared to the previous month’s upwardly revised 36,000 and an anticipated 200,000.
- Additional details from the report showed that the unemployment rate rose to 4.2% in November from 4.1%, as expected, and average hourly earnings remained at 4% versus 3.9% expected.
- The crucial jobs data reaffirmed market expectations that the Federal Reserve is unlikely to pause its easing cycle and reduce borrowing costs again at its next monetary policy meeting in December.
- The University of Michigan’s preliminary indicator of US consumer sentiment rose to 74.0 in December’s reading from 71.8, while one-year inflation expectations rose to 2.9% from 2.6% in November.
- Cleveland Fed President Beth Hammack said the economic outlook calls for modestly tightening policy, although the market’s view of a cut between now and the end of January is reasonable.
- San Francisco Fed President Mary Daly said the labor market remains in a good position and the central bank will still intervene with additional rate hikes if price growth starts to get out of control again.
- Chicago Fed President Austan Goolsbee stated that overall progress on inflation remains encouraging and any pause in rate cuts would come if inflation or labor market conditions change.
- Fed Governor Michelle Bowman said she prefers to lower interest rates cautiously and emphasized that core inflation remains uncomfortably above the central bank’s 2% target.
- The 10-year US government bond yield remains near its lowest level since October 21, limiting the US dollar’s recovery from a multi-week low and supporting the lower-yielding JPY.
USD/JPY remains range-bound; 100-day SMA key for bulls
From a technical perspective, the range-bound price action could be classified as a bearish consolidation phase in the context of the recent pullback from a multi-month high reached in November. Furthermore, the oscillators on the daily chart remain in negative territory and suggest that the path of least resistance for the USD/JPY pair is to the downside. That said, last week’s resistance below the 100-day SMA warrants some caution for bears.
Meanwhile, the post-NFP low, around the 149.35 area, now appears to act as immediate support ahead of the 149.00 level and the 100-day SMA, currently situated near the 148.70-148.65 region. The latter coincides with a nearly two-month low hit last Tuesday and should act as a key pivot point. Some follow-through selling could drag the USD/JPY to the 148.10-148.00 region en route to the 147.35-147.30 area and the round 147.00 figure.
On the other hand, a recovery attempt could face some resistance near the 150.55 region. This is followed by the 150.70 hurdle, the 151.00 round figure and last week’s high, around the 151.20-151.25 area. A sustained move beyond the latter should allow the USD/JPY pair to test the all-important 200-day SMA near the 152.00 level. Some continuation buying will suggest that the corrective decline from a multi-month high has come to an end and will shift the bias in favor of the bulls.
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.
