The Japanese Yen (JPY) recovers slightly after touching a fresh one-year low against a broadly weaker US Dollar (USD) during the Asian session on Monday. The global risk sentiment takes a hit amid concerns about further escalation of geopolitical tensions, which, in turn, is seen driving some safe-haven flows toward the JPY. The USD, on the other hand, is pressured by growing concerns about the Federal Reserve’s (Fed) independence, which offsets reduced bets for more aggressive policy easing this year, and exerts pressure on the USD/JPY pair.
However, a deepening Japan-China rift and reports that Japan’s Prime Minister Sanae Takaichi may call an early general election add a layer of uncertainty amid the lack of clarity about the likely timing of the next Bank of Japan (BoJ) interest rate hike. This might hold back the JPY bulls from placing aggressive bets and help limit the downside for the USD/JPY pair. Moreover, traders might opt to wait for the release of the latest US inflation figures – the Consumer Price Index (CPI) and the Producer Price Index (PPI), due on Tuesday and Wednesday, respectively.
Japanese Yen bears have the upper hand amid reports of snap elections in Japan and BoJ rate-hike doubts
- US President Donald Trump told reporters on Sunday that he was considering a range of options, including potential military action, in response to the unrest in Iran. The latter threatened to target US military bases if Trump carries out threats to intervene on behalf of protesters.
- This comes on top of the intensifying Russia-Ukraine war and tempers investors’ appetite for riskier assets, lending some support to the safe-haven Japanese Yen at the start of a new week. However, a combination of factors holds back traders from placing aggressive JPY bullish bets.
- Last week, China prohibited dual-use goods, including some rare earth elements, from being exported to Japan with immediate effect. The ban follows a diplomatic row over Taiwan and heightens supply-chain risk for Japanese manufacturers, which could act as a headwind for the JPY.
- The Yomiuri newspaper reported on Friday that Japan’s Prime Minister Sanae Takaichi was considering holding a snap parliamentary election in the first half of February. Adding to this, the uncertainty over the timing of the next Bank of Japan interest rate hike could cap the JPY.
- The US Dollar, on the other hand, attracts heavy selling amid growing worries about the US Federal Reserve’s independence and moves away from its highest level since December 5, touched on Friday. This further contributes to the USD/JPY pair’s Asian session slide to mid-157.00s.
- Fed Chair Jerome Powell said that the Department of Justice is threatening a criminal indictment against him. Powell added that the threat of criminal charges is a consequence of the Fed, based on its best assessment of what will serve the public, rather than following the preference of the President.
- On the economic data front, the US Bureau of Labor Statistics (BLS) reported on Friday that Nonfarm Payrolls rose by 50K in December, below expectations for a reading of 60K and November’s 56K (revised from 64K). However, the Unemployment Rate fell to 4.4% from 4.6% in November.
- This led to a shift in the likelihood of a Fed rate cut at the next policy meeting on January 28, though it failed to impress the USD bulls. Nevertheless, the Fed is still expected to lower borrowing costs further this year, which marks a significant divergence compared to hawkish BoJ bets.
- In fact, BoJ Governor Kazuo Ueda reiterated last week that the central bank would continue to raise interest rates if economic and price developments move in line with forecasts, leaving the door open for further policy tightening. This, in turn, caps the upside for the USD/JPY pair.
- Traders now look forward to the release of the latest US inflation figures – the Consumer Price Index (CPI) and the Producer Price Index (PPI) on Tuesday and Wednesday, respectively. This would influence the USD price dynamics and provide a fresh impetus to the USD/JPY pair.
USD/JPY could appreciate further while above mid-157.00s; slightly overbought RSI warrants caution for bulls
The 200-period Simple Moving Average (SMA) on the 4-hour chart nudges higher at 156.14, with the USD/JPY pair holding above it to preserve a bullish bias. As a slower trend gauge, the rising SMA underscores underlying demand. The Moving Average Convergence Divergence (MACD) line stands above the Signal line and above zero, while the histogram remains positive, suggesting firm upside momentum. The Relative Strength Index (RSI) prints at 75 (overbought), pointing to stretched conditions that could cap immediate gains.
Price remains supported by the rising 200-period SMA, and a sustained hold above that average would keep buyers in control. MACD’s positive alignment reinforces the bullish tone. With RSI above 70, any dip could be a pause to unwind overbought readings before the trend resumes. Failure to maintain the SMA base would open room for a corrective pullback.
(The technical analysis of this story was written with the help of an AI tool)
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as 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. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
