- The Japanese Yen climbs back closer to a multi-month high against the USD on Tuesday.
- BoJ rate hike bets and the risk-off mood provide a goodish boost to the safe-haven JPY.
- A modest USD uptick assists the USD/JPY pair in reversing a major part of intraday losses.
The Japanese Yen (JPY) trims a part of intraday gains against its American counterpart, assisting the USD/JPY pair to rebound over 60 pips from the Asian session low. Weaker macro data from Japan, showing an unexpected uptick in the Unemployment Rate and a fall in corporate capital expenditure for the first time in three years, prompts some intraday selling around the JPY. Any meaningful JPY depreciation, however, seems limited in the wake of the hawkish sentiment surrounding the Bank of Japan’s (BoJ) policy outlook.
Meanwhile, concerns about the potential economic fallout from US President Donald Trump’s tariff policies temper investors’ appetite for riskier assets. This, in turn, could benefit the JPY’s relative safe-haven status. Furthermore, Trump’s threat to Japan over currency devaluation should act as a tailwind for JPY and contribute to limiting losses. Hence, it will be prudent to wait for some follow-through buying before confirming that the USD/JPY pair has bottomed out around the 148.60-148.50 region and positioning for further gains.
Japanese Yen bulls have the upper hand amid rising bets for more BoJ rate hikes
- Growing speculation that the Bank of Japan will hike interest rates sooner rather than later keeps the yield on the benchmark 10-year Japanese government bond close to its highest level since 2009 and continues to underpin the Japanese Yen.
- Ukrainian President Volodymyr Zelenskiy’s meeting with US President Donald Trump ended in disaster on Friday. A White House official confirmed that the US has paused military aid to Ukraine, which adds to the uncertainty in markets.
- Trump’s tariffs on Mexican and Canadian goods will take effect this Tuesday, along with a new 10% levy on Chinese goods. China’s Commerce Ministry vowed to take necessary countermeasures to safeguard legitimate rights and interests.
- Trump said on Monday that he has warned the leaders of China and Japan against devaluing their currencies against the US Dollar, arguing that such actions put American industries at a disadvantage.
- Japan’s Finance Minister, Katsunobu Kato, said on Tuesday that the country is not pursuing a policy of devaluing the domestic currency and Japan has confirmed its “basic stance on currency policy” with US Treasury Secretary Scott Bessent.
- Speaking at a separate news conference, Japan’s Economy Minister Ryosei Akazawa said that the government intervenes in the currency market only when the movement is “speculative”.
- Japan’s Prime Minister Shigeru Ishiba adds that the government is not pursuing so-called currency devaluation policy.
- Data released earlier this Tuesday showed that the Unemployment Rate in Japan unexpectedly edged up from 2.4% to 2.5% in January and Japanese companies reduced spending on plants and equipment in October-December by 0.2%.
- The Institute for Supply Management’s (ISM) Manufacturing PMI slipped to 50.3 in February from 50.9 in the previous month, while the Prices Paid Index jumped to 62.4, or nearly a three-year high amid worries about duties on imports.
- Moreover, investors remain concerned that Trump’s policies would increase price pressures and slow down activity in vital industrial sectors. This might force the Federal Reserve to cut rates further and weigh on the US Dollar.
USD/JPY could accelerate the fall below the multi-month low support near mid-148.00s
From a technical perspective, the overnight failure near the 151.00 support breakpoint, now turned resistance, validates the near-term bearish outlook for the USD/JPY pair. Moreover, oscillators on the daily chart are holding deep in negative territory and are still away from being in the oversold zone. This, in turn, supports prospects for an extension of the pair’s recent well-established downtrend witnessed over the past two months or so. Hence, some follow-through weakness below mid-148.00s, towards the next relevant support near the 148.00 round figure, looks like a distinct possibility. The downward trajectory could extend further towards the 147.35-147.30 region en route to the 147.00 mark.
On the flip side, the 149.65-149.70 area now seems to act as an immediate hurdle ahead of the 150.00 psychological mark. Any further move up might still be seen as a selling opportunity near the 150.60 region, which, in turn, should cap the USD/JPY pair near the 150.90-151.00 key hurdle. The latter should act as a pivotal point, which if cleared decisively might prompt a short-covering rally towards the 151.40-151.45 intermediate hurdle en route to the 152.00 round figure and the 152.35 region, or the very important 200-day Simple Moving Average (SMA).
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.
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