- USD/JPY remains flat near 152.00 as traders are uncertain about the outcome of the US presidential election.
- The Fed is expected to cut interest rates by 25 bps on Thursday.
- Investors await the BoJ minutes for fresh clues on when the central bank will raise interest rates again.
The USD/JPY pair is trading sideways near 152.00 in the North American session on Tuesday. The asset remains sideways as investors have stayed on the sidelines with the United States (US) presidential election underway. Before the completion of the voting process, operators expect a fierce competition between former President Donald Trump and Democratic contender Kamala Harris.
The pair will be guided by market expectations about the outcome of the US elections, which will be influenced by exit polls. According to analysts at TD Securities, “A Red Wave (in favor of the Republicans) would initiate a considerable rally in the USD. It would rekindle memories of American Exceptionalism, anchored in tariffs, tax cuts, deregulation and negative effects on the outlook for the area euro and China.”
At the time of writing, the US Dollar is falling, with the Dollar Index (DXY) down to 103.70. This week, investors will also focus on the Federal Reserve’s (Fed) monetary policy decision, which will be announced on Thursday.
According to the CME FedWatch tool, traders have priced in an interest rate reduction by 25 basis points (bps) to 4.50%-4.75%. This will be the second consecutive interest rate cut, however, the size of the cut will be smaller as the risks of an economic recession have decreased lately. In September, the Fed reduced its interest rates by 50 bps.
On the Tokyo front, investors await the Bank of Japan’s (BoJ) monetary policy minutes for the Oct. 31 meeting in which the central bank kept interest rates unchanged at 0.25% for the second time in a row. BoJ Governor Kazu Ueda did not provide any clues about further interest rate hikes. “We will examine available data at each policy meeting and update our view on the economy and outlook when deciding policy,” Ueda said.
The 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 differential between the yields of Japanese and US bonds or the risk sentiment among traders, among other factors.
One of the mandates of the Bank of Japan is currency control, so its movements are key for 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 the 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 depreciation of the Yen against its main currency pairs. This process has been exacerbated more recently by a growing policy divergence between the Bank of Japan 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 ultra-loose monetary policy stance has led to increased policy divergence with other central banks, particularly the US Federal Reserve. This favors the widening of the spread between US and Japanese 10-year bonds, which favors 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 in the Japanese currency due to its supposed 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.
