- The Japanese Yen hit four-month highs against the Dollar following the BoJ governor’s comments on Thursday.
- The rebound in US bond yields pushed the USD higher and helped USD/JPY find support near 142.50 on Friday.
- Divergent monetary policy expectations between the Bank of Japan and the Fed prevent further recovery in the pair ahead of the crucial US NFP report.
The Japanese Yen (JPY) struggles to retain its intraday gains against the US Dollar (USD) and lifts the USD/JPY pair above the 144.00 level during the European session on Friday. Following the previous day’s pullback from two-week highs, the US Dollar (USD) regains ground following a further rally in Treasury yields. Meanwhile, the downward revision of Japanese GDP for the third quarter, coupled with a positive risk tone, weighs on the safe-haven Yen and turns out to be another factor lending support to the USD/JPY pair.
However, the rise of the USD/JPY pair seems limited amid expectations that the Bank of Japan (BoJ) will abandon its ultra-flexible and strong stimulus policy in 2024. In fact, the governor of the BoJ, Kazuo Ueda, stressed Thursday the need to continue loose monetary policy in the short term and discussed options as it moves away from negative interest rates. Ueda’s comments reaffirmed market speculation about an imminent change in the Bank of Japan’s monetary policy. Apart from this, the dovish expectations from the Federal Reserve (Fed) should limit the Dollar and act as a headwind for the pair.
Additionally, investors will prefer to stay on the sidelines ahead of Friday’s release of monthly U.S. employment data, popularly known as nonfarm payrolls (NFP). Investors will look for signs that the historically tight U.S. labor market is easing, which could force the Fed to start easing monetary policy as early as March 2024. The data will play a key role in influencing the dynamics of USD prices in the near term and provide some significant boost to the USD/JPY pair, which remains on track to post losses for the third consecutive week.
Daily Market Summary: Japanese Yen Slides Toward Low End of Daily Range Against Dollar, Lacks Follow-Up
- The Japanese Yen posted its biggest one-day rally against the US Dollar on Thursday, reacting to Bank of Japan Governor Kazuo Ueda’s slightly hawkish messages about ending ultra-loose monetary policy.
- Ueda pointed to the spring wage negotiations as the possible turning point in monetary policy and told Prime Minister Kishida that the central bank is waiting to see whether wages will rise sustainably and whether wage hikes will push up prices for services.
- Ueda previously stated that a situation has not yet been reached where the price target can be achieved in a sustainable, stable manner and with sufficient certainty, noting that the stimulus measures are supporting the Japanese economy.
- Disappointing national data released on Friday, showing that the Japanese economy contracted at a rate of 2.9% year-on-year in the third quarter, worse than the initial estimate of a 2.1% decline, lends some support to the USD/JPY pair on Friday .
- In quarterly terms, Japanese GDP contracted 0.7% in the July-September period, compared to the 0.5% drop initially reported and the average forecast of a 0.5% drop.
- The benchmark 10-year US government bond yield is moving away from three-month lows and helping to revive demand for the dollar, helping the USD/JPY pair to trim some of the Asian session’s losses.
- Growing acceptance that the Federal Reserve is done raising interest rates and could begin easing policy in the first half of 2024 should cap the dollar, justifying caution for USD/JPY bulls.
- Investors are eagerly awaiting the release of the US NFP, which is expected to show that the economy added 180,000 jobs in November and that the unemployment rate remained stable at 3.9%.
Technical Analysis: USD/JPY struggles to capitalize on its good intraday recovery above the 144.00 level
From a technical point of view, the pair on Thursday showed some resistance below the 61.8% Fibonacci retracement of the July-November rally and the all-important 200-day SMA. However, the USD/JPY pair has, so far, been struggling to find acceptance above the 144.00 round level, which should now act as a key pivot point for short-term traders. With the Relative Strength Index (RSI) on the daily chart showing oversold conditions, sustained strength above that level could trigger a short covering rally and allow the USD/JPY pair to reclaim the psychological level of 145.00.
On the other hand, the level of 143.00 seems to protect the downtrend before the low of the Asian session, around 142.50, which coincides with the 61.8% Fibonacci. Closely followed by the 200-day SMA, currently near the 142.30 area, the 142.00 level and the 141.60 area, the multi-month low reached the previous day. The continuation of the downtrend could trigger a fresh decline in the USD/JPY pair, which could extend its downward trajectory towards the 141.00 level, on its way towards the 140.80-140.75 area.
Quote of the Japanese Yen today
Below is the percentage change of the Japanese Yen (JPY) against major currencies today.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.04% | 0.16% | -0.11% | -0.23% | -0.21% | 0.15% | -0.10% | |
| EUR | -0.06% | 0.11% | -0.17% | -0.29% | -0.28% | 0.08% | -0.15% | |
| GBP | -0.16% | -0.12% | -0.30% | -0.39% | -0.40% | -0.02% | -0.24% | |
| CAD | 0.11% | 0.15% | 0.28% | -0.12% | -0.03% | 0.25% | 0.00% | |
| AUD | 0.20% | 0.28% | 0.40% | 0.10% | -0.01% | 0.37% | 0.16% | |
| JPY | 0.22% | 0.29% | 0.42% | 0.10% | 0.01% | 0.42% | 0.15% | |
| NZD | -0.13% | -0.11% | 0.02% | -0.25% | -0.38% | -0.39% | -0.22% | |
| CHF | 0.07% | 0.10% | 0.22% | -0.06% | -0.18% | -0.15% | 0.20% |
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.
