- The Japanese Yen falls for the fourth consecutive day and hits a three-week low against the US Dollar.
- Lowering expectations for a Bank of Japan turnaround in January weighs on the Yen and lifts the USD/JPY pair above the 145.00 level.
- Declining odds of more aggressive Fed easing underpin the dollar and also lend support to the pair.
- Traders now await US monthly employment data (NFP) for significant directional impetus.
The Japanese Yen (JPY) extends its weekly bearish trend against the US Dollar (USD) for the fourth consecutive day and falls to three-week lows during the early hours of the European session on Friday. The strong earthquake that hit Japan on New Year's Day makes it difficult for the Bank of Japan (BoJ) to lift negative interest rates later this month, which in turn is seen as a key factor weakening the national currency. Meanwhile, declining odds of more aggressive easing by the Federal Reserve (Fed) remain a support for elevated US Treasury yields and help the dollar remain stable for below a nearly three-week high hit on Wednesday. This, in turn, lifts the USD/JPY pair beyond the psychological level of 145.00 in the last hour.
Although speculation about a January tightening is subsiding, investors remain convinced that the Bank of Japan will abandon ultra-loose monetary policy later in 2024, possibly in April, following annual wage negotiations in March. This, along with a generally weaker tone around equity markets, could help limit any further losses for the safe-haven JPY. Traders could also choose to stay on the sidelines pending official monthly US employment data before opening new directional positions. The Non-Farm Payrolls (NFP) report could give clues about when the Fed will start cutting interest rates, which in turn will influence the price dynamics of the Dollar and give a new boost to the USD/USD pair. JPY on the last day of the week.
Daily Market Summary: Japanese Yen Continues to Lose Ground Amid Fading Hopes for a Bank of Japan Tough Turn
- The Japanese Yen is pressured by expectations that the Bank of Japan will maintain its current ultra-loose policy to assess the adverse impact of the devastating earthquake on the economy.
- BoJ Governor Kazuo Ueda stated last week that he was in no rush to abandon accommodative monetary policy as he was not convinced that inflation would sustainably reach the 2% target.
- On Thursday, Ueda said he expected further progress in achieving balanced increases in wages and inflation, and that the BoJ would support the financial system after the earthquake.
- Market participants still expect the BoJ to end its negative interest rate policy sometime in 2024, which, coupled with the state of risk aversion, could offer some support to the safe-haven Yen.
- Against the backdrop of geopolitical risks and China's economic woes, the declining likelihood of the Federal Reserve carrying out multiple rate cuts in 2024 continues to weigh on investor sentiment.
- Minutes from the FOMC's Dec. 12-13 policy meeting, released Wednesday, offered no clue as to when the Fed might start cutting interest rates.
- Separately, Richmond Fed President Thomas Barkin on Wednesday expressed confidence that the economy is headed for a soft landing and said rate hikes remain on the table.
- Elsewhere, Thursday's favorable US labor market data reduced expectations of an early interest rate cut by the Fed and continues to support high US Treasury yields.
- Data released on Thursday by Automatic Data Processing (ADP) showed that US private sector employment rose by 164,000 jobs in December, compared to the 115,000 expected, and that annual wages rose 5.4% year-on-year.
- Separately, the US Department of Labor reported that the number of Americans filing new claims for unemployment-related benefits fell more than expected, to 202,000 last week.
- Japan's Jibun Bank/S&P Global services PMI was set at 51.5 for December, down from a preliminary reading of 52 and 50.8 in November.
- Traders appear to have stayed on the sidelines awaiting the US NFP report, which is expected to show the economy added 170,000 new jobs in December, down from 199,000 previously.
- The unemployment rate is forecast to rise from 3.7% to 3.8% during the reporting month, while growth in average hourly earnings will slow to a year-over-year rate of 3.9% from 4.0% in November.
Technical Analysis: USD/JPY rises beyond 145.00, bulls in control near multi-week highs
From a technical perspective, the USD/JPY pair is trying to build momentum beyond the 38.2% Fibonacci retracement of the November-December decline. Since the oscillators on the daily chart have started to gain positive traction, some continuation buying beyond the psychological level of 145.00 should pave the way for further gains. The pair could accelerate the positive move towards the intermediate barrier of 145.45-145.50 on its way towards the round level of 146.00, the 50% Fibonacci.
On the opposite side, any significant decline now seems to find decent support ahead of the 144.00 level. A convincing break below, however, could spark some technical selling and expose the 200-day SMA support, currently around the 143.25-143.20 region. The latter should act as a key point for the USD/JPY pair, which if broken decisively will suggest that the recent recovery from a multi-month low has ended and shift the short-term bias back in favor of the bears.
Quote of the Japanese Yen this week
Below is the percentage change of the Japanese Yen (JPY) against the major currencies during this week.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.91% | 0.30% | 0.76% | 1.47% | 2.57% | 1.25% | 0.94% | |
| EUR | -0.76% | -0.44% | 0.00% | 0.70% | 1.65% | 0.46% | 0.12% | |
| GBP | -0.32% | 0.44% | 0.46% | 1.14% | 2.33% | 0.91% | 0.56% | |
| CAD | -0.76% | -0.02% | -0.28% | 0.70% | 1.81% | 0.48% | 0.13% | |
| AUD | -1.44% | -0.68% | -1.14% | -0.70% | 0.93% | -0.23% | -0.55% | |
| JPY | -2.57% | -1.63% | -2.20% | -1.60% | -0.89% | -1.14% | -1.69% | |
| NZD | -1.26% | -0.49% | -0.92% | -0.50% | 0.24% | 1.17% | -0.34% | |
| CHF | -0.88% | -0.12% | -0.56% | -0.10% | 0.59% | 1.66% | 0.36% |
The heat map shows the percentage changes of the major currencies against each other. The base currency is chosen in the left column, while the quote currency is chosen in the top row. For example, if you choose the euro in the left column and scroll down the horizontal line to the Japanese yen, the percentage change that appears in the box will represent EUR (base)/JPY (quote).
Frequently Asked Questions about the Japanese Yen
What factors determine the price of the Japanese Yen?
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.
How do decisions by the Bank of Japan affect the Japanese Yen?
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.
How does the spread between Japanese bond yields and US bond yields affect the Japanese Yen?
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.
How does general risk sentiment influence the Japanese 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.
