- The Japanese yen struggles to capitalize on the modest upward opening on Monday.
- The result of the elections to the Upper House of Japan and the commercial uncertainties undermine the JPY.
- The decreasing probabilities of an immediate increase in Boj’s rates contribute to the intradía of JPY.
The Japanese Yen (JPY) attracts new sellers after a modest upward opening at the beginning of a new week in the midst of internal political uncertainty. The elections to the Upper House of Japan on Sunday gave a great blow to the ruling coalition and generated concerns about an increase in debt, in the midst of opposition calls to increase spending and cut taxes. The result could further complicate trade negotiations with the USA in the midst of the impending tariff deadline of August 1. Apart from this, economic growth in deceleration, the decrease in real wages and inflation cooling signals could allow the Bank of Japan (Boj) to dispense with increasing interest rates in the short term, which, in turn, continues to undermine the JPY.
The aforementioned fundamental background suggests that the JPY is more likely to continue its relative low performance observed since the beginning of this month. However, the persistent uncertainties about the erratic commercial policies of US President Donald Trump could support the JPY safe refuge status. In addition, the action of the American dollar (USD), in the middle of mixed signals on the federal reserve rate cuts (Fed), could act as a wind against the USD/JPy torque and contribute to limit any additional gain. However, the fundamental background seems to be inclined firmly in favor of the JPY bassists and suggests that the path of lower resistance for the torque is upwards.
The Japanese Yen Alcistas remain on the sidelines after the result of the elections to the Upper House of Japan
- The ruling coalition of Japan – the Democratic Liberal Party (LDP) and its Junior Komeito – failed to ensure a majority in the country’s upper house in Sunday’s attempts. Having already lost its majority in the lower, more powerful house, in Japan last October, the defeat will undermine the influence of the coalition.
- This increases the risk of political paralysis at a complicated time in which Japan is struggling to reach a commercial agreement with the USA before the deadline of August 1 for the reciprocal tariffs of President Donald Trump. Japan faces a punitive tax of 25% over all exports to the US in the midst of stagnant negotiations on the protection of the rice market of the latter.
- In addition, history suggests that internal political uncertainty tends to keep the Bank of Japan out. Therefore, the perspective of rates increases will now be delayed a little more, at least until the end of October. This, in turn, undermines the Japanese yen and helps the USD/JPY to attract some purchases in setback.
- The US dollar remains at a disadvantage below the monthly peak after the moderate comments of the Governor of the Federal Reserve, Christopher Waller, last week, supporting the possibility of a rate cut in July. However, investors seem convinced that the US Central Bank will maintain raised rates for a longer period of inflationary concerns.
- The latest US inflation figures published last week indicated that the growing imports on Trump administration are moving to consumer prices. The operators seem convinced that the Fed will wait at least until September before taking action and are valuing the possibility of a rate of 50 basic points for the end of the year.
- The Japanese markets are closed on the observance of the Sea Day. In addition, there are no relevant data that move the market scheduled for publication from the US, leaving the USD/JPY to the mercy of the USD price dynamics. Later this week, operators will take signals from the preliminary global PMIS, which could influence the JPY as a safe refuge.
USD/JPY seems prepared to appreciate even more; A sustained strength is expected above 149.00
From a technical perspective, the USD/JPY torque showed once again a certain resilience below the exponential (EMA) mobile average of 100 hours. However, the recent failure in finding acceptance above the 149.00 mark justifies some caution for the bullies. Therefore, it will be prudent to wait for some purchase of continuation beyond the region of 149.15-149.20, or a peak of several months, before positioning for any additional gain. Since the oscillators in the daily chart remain comfortably in positive territory, cash prices could then aspire to recover the psychological brand of 150.00.
On the contrary, any corrective setback could continue to find some support near the 148.00 mark, or the minimum of the Asian session. This is followed by the 147.70-147.65 area, or the 100-hour SMA, which, if it breaks, could drag the USD/JPY torque at levels below 147.00. The acceptance below the latter could change the bias in favor of bearish operations and pave the way for a fall to the intermediate support of 146.60 en route to the 146.20 area, the 146.00 mark and the 100 -day SMA, currently located near the region of 145.80.
Japanese – frequent questions
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.
