- The USD/JPY strengthens around 147.55 in the Asian session on Tuesday.
- Japan’s prime minister promises to remain in office despite the fact that his ruling coalition is sure to lose control of the upper house in Sunday’s elections.
- Investors will closely monitor developments around commercial conversations between the US and Japan.
The USD/JPY torque attracts some buyers about 147.55 during the Asian negotiation hours on Tuesday. The Japanese Yen (JPY) weakens against the US dollar (USD) due to political uncertainty and growing concerns about the direction of the future fiscal policy in Japan.
Japanese Prime Minister Shigeru Ihiba has promised to remain in office, despite the fact that exit surveys show that his Democratic Liberal Party (LDP) is sure to lose control of the upper house in Sunday’s elections. David Chao de Investco said that the result of the elections to the Upper House of Japan “was largely expected by the markets.” Chao added that “all eyes are very much in the trade agreement now between Japan and the US”
Operators will change their attention to commercial conversations between the US and Japan. Japan’s main tariff negotiator, Ryosei Akazawa, said Monday that he will seek some commercial agreement with the US for August 1. Any signal. The political pressure in Japan, together with the renewed commercial tensions, could undermine the JPY and act as a tail wind for the torque in the short term.
However, the caution posture of the US Federal Reserve (Fed) could drag the dollar down. The governor of the Fed, Christopher Waller, acknowledged that, although the labor market remains stable in general, the conditions in the private sector are less robust.
Waller expressed support for a possible rate cut in July, adding that the Fed should not “wait until the labor market deteriorates before cutting the policy rate.” Markets are now valuing in almost 59% the probabilities of a feat cut by the US Central Bank in September, according to the CME Fedwatch tool.
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.
