- USD/JPY rebounded from a four-month low of 148.50 hit on Thursday.
- The US ISM Manufacturing PMI fell to an eight-month low of 46.8 in July, from 48.5 in June.
- The Japanese Yen could advance as the BoJ indicated it could raise rates further if the economy requires it.
The USD/JPY is trading around 149.40 during the Asian session on Friday after bouncing off a four-month low of 148.50 hit on Thursday. This rise in the USD/JPY pair could be attributed to the improvement in the US Dollar (USD), which could be due to the increased risk-off mood following recent manufacturing and employment data raising concerns about the US economy.
The US Dollar (USD) is receiving support as markets are grappling with a delicate balancing act. However, an economic downturn is raising expectations for a rate cut by the Federal Reserve. The CME FedWatch tool indicates that traders are fully pricing in a 25 basis point rate cut on September 18. Additionally, traders are awaiting the upcoming US Nonfarm Payrolls and Average Hourly Earnings data for July, which will be released later during the American session.
The US ISM Manufacturing Purchasing Managers’ Index (PMI) fell to an eight-month low of 46.8 in July, compared with the previous reading of 48.5 and a forecast for an increase to 48.8. US Initial Claims for Jobless Benefits for the week ended July 26 rose to 249K from 235K in the previous week, beating the forecast for an increase to 236K.
The Japanese Yen (JPY) has received support following the Bank of Japan’s (BoJ) decision to raise its policy rate to a 16-year high of 0.25%. This move, coupled with the BoJ’s indication that it could raise rates further if the economy requires it, could push the JPY higher. Market expectations are now pricing in two additional rate hikes before the end of the fiscal year in March 2025, with the next increase anticipated in December. This outlook could limit the upside potential of the USD/JPY pair.
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 spread between Japanese and US bond yields, and risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key to 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 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 Yen to depreciate against its major currency peers. This process has been exacerbated more recently by a growing policy divergence between the BoJ 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 stance of maintaining an ultra-loose monetary policy has led to an increase in policy divergence with other central banks, in particular with the US Federal Reserve. This favours the widening of the spread between US and Japanese 10-year bonds, which favours 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 into the Japanese currency due to its perceived 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.
