- The Japanese Yen attracts buyers for the second day in a row amid renewed fears of intervention.
- Geopolitical tensions further benefit the safe-haven JPY and put pressure on the USD/JPY pair.
- Uncertainty over the BoJ rate hike could limit JPY gains ahead of Japan’s snap general election.
The Japanese Yen (JPY) remains higher against its US counterpart for the second day in a row on Tuesday and drags the USD/JPY pair away from its highest level since August 16, reached the previous day. Late-night comments from Japanese officials reignited fears of intervention and turned out to be a key factor supporting the JPY. This, along with the risk of further escalation of geopolitical tensions in the Middle East, drives some safe haven flows into the JPY.
That said, decreasing odds of another rate hike by the Bank of Japan (BoJ) in 2024 could hold back JPY bulls from opening aggressive bets. Meanwhile, Friday’s upbeat US jobs report forced investors to reduce expectations of another large interest rate cut by the Federal Reserve (Fed) in November, allowing the dollar US (USD) hold firm near a seven-week high. This, in turn, could continue to offer some support to the USD/JPY pair and limit any further declines.
Daily Market Summary: Japanese Yen Bulls May Refrain from Opening Aggressive Bets Amid BoJ Rate Hike Uncertainty
- Japan’s Deputy Finance Minister for International Affairs Atsushi Mimura warned against speculative moves in the currency market, fueling speculation that the government could intervene to support the Japanese yen.
- Additionally, Japan’s newly appointed Finance Minister Katsunobu Kato said the government would monitor how rapid currency movements could potentially impact the economy and take action if necessary.
- Additionally, fears that tensions in the Middle East could escalate into a broader conflict, driving safe-haven flows into the JPY and dragging the USD/JPY pair away from its highest level since August 16, reached on Monday.
- In the latest developments, Lebanon’s Hezbollah fired rockets at Israel’s port city of Haifa and a military base near the central city of Tel Aviv, while Israel bombed a pair of buildings in Beirut’s southern suburbs.
- Japan’s Prime Minister Shigeru Ishiba’s recent comments saying the country is not in an environment for further rate hikes have raised doubts about the Bank of Japan’s ability to tighten further in the coming months.
- This, along with uncertainty over the Japanese general election on October 27, could act as a headwind for the JPY and offer support to the USD/JPY pair amid a short-term bullish tone around the US Dollar.
- Against the backdrop of Federal Reserve Chair Jerome Powell’s hawkish comments, the upbeat US jobs report dashed hopes for more aggressive easing policy and kept USD bulls elevated near a maximum of several weeks.
- Traders now await the release of the FOMC minutes on Wednesday and key US inflation data: consumer inflation figures and the Producer Price Index (PPI) on Thursday and Friday, respectively.
Technical Outlook: USD/JPY setup favors bulls and supports prospects for dip buying to lower levels
From a technical perspective, last week’s break above the 50-day SMA for the first time since mid-July, and the subsequent move beyond the 38.2% Fibonacci retracement level of the drop from July to September were seen as new triggers for the bulls. Furthermore, the oscillators on the daily chart have been gaining positive traction and suggest that the path of least resistance for the USD/JPY pair is to the upside. Therefore, any further decline could still be seen as a buying opportunity and is more likely to remain cushioned near the 147.00 mark, which should now act as a key pivot point.
On the other hand, a sustained move above the 148.00 mark could trigger some technical buying and lift the USD/JPY pair to the 148.70 resistance zone en route towards the round figure of 149.00. Some follow-up buying beyond the weekly high, around the 149.10-149.15 region, will reaffirm the positive outlook and allow the bulls to reclaim the psychological mark of 150.00.
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.
