- The Japanese Yen strengthens slightly following the release of stronger PPI print from Japan.
- The uncertainty over how soon the BoJ could raise rates keeps the JPY bulls on the defensive.
- The USD preserves its recent gains and lends support to USD/JPY ahead of the US CPI report.
The Japanese Yen (JPY) attracts some buyers following the release of a stronger Producer Price Index (PPI) from Japan earlier this Wednesday and for now, seems to have snapped a two-day losing streak against its American counterpart. However, growing scepticism regarding the Bank of Japan’s (BoJ) intention to raise interest rates in its meeting next week is holding back the JPY bulls from placing aggressive bets.
Adding to this, some follow-through recovery in the US Treasury bond yields contributes to capping the upside for the lower-yielding JPY. This, along with the recent US Dollar (USD) move up to a near one-week high, could support the USD/JPY pair. Investors might also opt to wait for the release of the US consumer inflation figures, which could offer cues about the Fed’s rate-cut path and provide a fresh impetus.
Japanese Yen might stuggle to attract any meaningful buyers amid uncertainty over December BoJ rate hike
- A preliminary report by the Bank of Japan revealed this Wednesday that Japan’s Producer Price Index (PPI) increased by 0.3% in November and rose by 3.7% compared to the same time period last year.
- This comes on top of last Friday’s wage growth figures, which showed that October base pay grew 2.7% YoY, or the fastest rate since November 1992 and gives the BoJ another reason to hike interest rates.
- Moreover, BoJ Governor Kazuo Ueda recently said that the timing of the next rate hike was approaching, though some media reports suggested the central bank may skip a rate hike later this month.
- Furthermore, BoJ’s more dovish board member Toyoaki Nakamura said last week that the central bank must move cautiously in raising rates, fueling uncertainty about the BoJ’s December policy decision.
- The US Treasury bond yields ended at their highest levels in at least a week on Tuesday on the back of growing acceptance that the Federal Reserve will adopt a cautious stance on cutting interest rates.
- The US Dollar preserves its gains registered over the past three days and offers some support to the USD/JPY pair as traders keenly await the release of the latest US consumer inflation figures later today.
- The headline US Consumer Price Index (CPI) is expected to increase to 0.3% in November as compared to 0.2% in the previous month and rise to 2.7% on a year-over-year basis from 2.6% in October.
- Meanwhile, the core gauge (excluding food and energy prices) is forecast to remain unchanged at 0.3% for November and at a 3.3% YoY rate, raising concern over lingering inflationary pressures.
- The data won’t necessarily derail expectations for a rate cut by the Fed at next week’s meeting, though would suggest fewer rate cuts coming at a slower pace than many had been anticipating.
USD/JPY faces rejection near a technically significant 200-day SMA; downside potential seems limited
The overnight failure to find acceptance above the 152.00 mark, which coincides with the 200-day Simple Moving Average (SMA), warrants caution for bulls. Moreover, neutral oscillators on the daily chart make it prudent to wait for a sustained strength beyond the said barrier before positioning for an extension of the recent bounce from a near two-month low. The USD/JPY pair might then climb to the 152.70-152.75 region, or the 50% retracement level of the downfall from a multi-month top touched in November. This is followed by the 153.00 round figure, above which spot prices could extend the momentum towards the 61.8% Fibonacci level, around the 153.70 area.
On the flip side, weakness below the 151.55-151.50 region could be seen as a buying opportunity and find decent support near the 151.00 mark. Some follow-through selling, however, might expose the 150.00 psychological mark, with some intermediate support near the 23.6% Fibo. level, around the 150.50 area. Failure to defend the said support levels could drag the USD/JPY pair back towards the 149.55-149.50 region en route to the 149.00 round figure and 148.65 zone, or the lowest level since October 11 touched last week.
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.
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