- The US dollar fails to break over 147.00 and yields profits as risk aversion fades.
- The hopes of a commercial agreement between the US and Japan are providing some support to the YEN.
- Later today, US FOMC minutes will provide additional guidance for the US dollar.
The US dollar has cut previous profits in the European session on Wednesday, since the feeling of the market improved, and is quoting with marginal profits against Yen, approaching the middle part of the 146,000 after the rejection in 147.15.
The torque was appreciated around 1.5% in the previous two days, after a letter from President Trump announced 25% tariffs on all Japan products, and moved the deadline to August 1 from original July 9.
The hopes of a trade agreement are preventing Yen from falling more
Commercial negotiations between the two countries are ongoing, and it is expected that the US secretary, Scott Besent, visit the world exhibition in Osaka, where it is likely to meet with Japanese officials. This, and the disposition shown by both countries to reach an agreement, feeds the hopes that a treatment is still possible, but that means solving critical issues such as car exports.
Meanwhile, the mood of the market has improved and the yields of the US Treasury have dropped, which provided some support to the Japanese Yen, highly sensitive to differentials between the yields of Japanese and American bonds.
Later today, attention will focus on the minutes of the June Federal Reserve meeting. President Powell surprised with an unexpectedly aggressive tone at the press conference after the decision, and subsequent labor data supported their views. The risk to the US dollar is rising biased.
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.
