- USD/JPY rises near 148.00 as the safe-haven appeal of the Japanese yen has diminished.
- US inflation data will influence market speculation on the size of the Fed’s rate cut in September.
- Investors see US headline and core PPI growing at a slower pace both monthly and annually.
The USD/JPY pair jumps to near 148.00 in the European session on Tuesday. The asset gains as the Japanese yen (JPY) weakens due to a sharp decline in safe-haven flows. Investors’ appetite for risky assets has improved as fears of a possible recession in the United States (US) have significantly decreased.
Concerns about a US slowdown were sparked by a weak Nonfarm Payrolls (NFP) report for July. However, a decline in Initial Jobless Claims for the week ending August 2 suggested that labor market conditions are not as bad as expected.
Meanwhile, market sentiment is upbeat with the US Consumer Price Index (CPI) for July on the horizon. S&P 500 futures have posted decent gains in the European session. The Dollar Index (DXY), which tracks the value of the greenback against six major currencies, is holding the key support level of 103.00. US 10-year Treasury bond yields are up near 3.91%.
The US CPI is expected to significantly influence market speculation about Federal Reserve (Fed) interest rate cuts this year. Financial markets currently expect the Fed to start cutting interest rates as early as the September meeting. However, traders are divided on the size of the rate cut. The CME FedWatch tool shows that the probability of a 50 basis point (bp) rate cut is 49.5%.
In today’s session, investors will focus on the US Producer Price Index (PPI) data for July, due out at 12:30 GMT. Economists expect the monthly headline PPI to have barely increased last month. While the core PPI, which excludes volatile food and energy prices, grew at a slower pace of 0.2% from the previous release of 0.4%. The annual headline and core PPI are estimated to have slowed by three-tenths to 2.3% and 2.7%, respectively.
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.
