- USD/JPY is gaining ground around 159.10 in early Asian trading on Friday, up 0.19% on the day.
- Traders increased their bets on Fed rate cuts in September after softer US June CPI inflation.
- A possible additional intervention in the currency market by the Japanese authorities could support the JPY and limit the upside of the pair.
The USD/JPY pair remains in positive territory near 159.10 after bouncing from a near three-week low of 157.41 during early Asian trading hours on Friday. The pair’s upside could be limited by fears of further intervention in the foreign exchange (FX) market by Japanese officials. Traders will be keeping an eye on the US June Producer Price Index (PPI) and the preliminary Michigan Consumer Sentiment indicator for July, which will be released later on Friday.
The lowest reading of the Consumer Price Index (CPI) in more than three years has triggered the possibility of the Federal Reserve (Fed) cutting rates as early as September. US CPI inflation was softer than expected in June, with annualized headline CPI inflation easing to 3.0% YoY from the previous reading of 3.3%. Meanwhile, monthly CPI inflation fell 0.1% MoM in June from last month’s flat 0.0% and below the market consensus of 0.1%.
Fed Chairman Jerome Powell acknowledged progress on price pressures but was not yet ready to call inflation. Powell added, however, that “more good data” would open the door to rate cuts. Financial markets saw a nearly 85% chance of a Fed rate cut in September, up from the 70% probability seen before the CPI report. Two rate cuts are anticipated this year.
The Japanese Yen (JPY) gained traction in the previous session amid speculation that Japanese authorities might intervene in the foreign exchange market to support their currency. Earlier on Friday, Japan’s top foreign exchange diplomat Masato Kanda stated that the recent move in the JPY is somewhat rapid and will take appropriate measures in the foreign exchange market if necessary. Possible further intervention by officials will likely support the JPY and act as a headwind for the USD/JPY for the time being.
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.
