The Japanese Yen (JPY) remains on the front foot against its American counterpart through the Asian session on Thursday and reverses a part of the previous day’s retracement slide from the weekly high. Minutes of the Bank of Japan’s (BoJ) September meeting, released on Wednesday, kept hopes alive for an imminent interest rate hike. This comes on top of speculation that Japanese authorities might intervene to stem further weakness in the domestic currency, offering some support to the JPY.
Meanwhile, investors remain uncertain about the timing of the next BoJ move amid expectations that Japan’s new Prime Minister Sanae Takaichi will pursue aggressive fiscal spending plans and resist policy tightening. This, along with a generally positive tone, could act as a headwind for the safe-haven JPY. The USD, on the other hand, might continue to draw support from the US Federal Reserve’s (Fed) hawkish tilt, which should further contribute to limiting the downside for the USD/JPY pair.
Japanese Yen bulls retain intraday control amid bets for an imminent BoJ rate hike
- Minutes of the Bank of Japan’s September 18-19 meeting highlighted a cautious rate-hike path as policymakers weighed inflation dynamics and trade risks. Board members, however, said that the central bank may be able to return to a monetary policy stance of raising interest rates, as the BoJ’s 2% price stability target has been more or less achieved.
- Japan’s Vice Finance Minister for International Affairs and top foreign exchange official, Atsushi Mimura, said on Wednesday that the recent JPY moves deviate from the fundamentals. Mimura added that JPY long positions have been shrinking as there is some speculation in the market about Japan’s macroeconomic policies, especially fiscal policy.
- Meanwhile, Japan’s new Prime Minister, Sanae Takaichi, has a pro-stimulus stance, advocating significant fiscal spending to tackle inflation and boost the economy. Moreover, the BoJ remains reluctant to commit to further rate hikes, which might hold back the Japanese Yen bulls from placing aggressive bets and positioning for strong gains.
- The US Dollar shot to its highest level since late May the previous day and remains well supported by reduced bets for another interest rate cut by the US Federal Reserve in December. Moreover, the upbeat US macro data provided an additional boost to the USD and contributed to the USD/JPY pair’s intraday recovery from sub-153.00 levels.
- Automatic Data Processing (ADP) reported that private sector employment in the US rose by 42K in October, compared to 25K estimated and a 29K decrease recorded in the previous month. Adding to this, the Institute for Supply Management’s (ISM) Non-Manufacturing Purchasing Managers’ Index rose to an eight-month high in October.
- However, the longest US government shutdown in history has caused a blackout of official data, clouding the economic outlook. The US government closure enters its 36th day with no resolution in sight. Economists warn that the longer the impasse drags on, the higher the risk that the fragile economy could shift from bending to breaking.
- This, in turn, is holding back the USD bulls from placing fresh bets and exerting some downward pressure on the USD/JPY pair during the Asian session on Thursday. Traders now look forward to speeches from a slew of influential FOMC members for cues about the future rate-cut path, which should provide a short-term impetus later today.
USD/JPY technical setup backs the case for the emergence of dip-buyers at lower levels
The USD/JPY pair has been facing stiff resistance near the 154.40-154.45 region over the past week or so. The said area should now act as a key pivotal point, above which spot prices could aim to reclaim the 155.00 psychological mark. Some follow-through buying should pave the way for a move towards the 155.60-155.65 hurdle before spot prices climb further towards the 156.00 round figure.
On the flip side, the 153.65 area could offer some support ahead of the overnight swing low, around the 153.00-152.95 region. Acceptance below the 153.00 mark might prompt some technical selling and make the USD/JPY pair vulnerable to accelerate the corrective fall towards the 152.55-152.50 intermediate support en route to the 152.00 round figure and last week’s swing low, around the 151.55 zone.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
