- The Japanese Yen drifts lower against its American counterpart during the Asian session.
- BoJ rate hike bets, geopolitical risk, and trade war fears could underpin the safe-haven JPY.
- Subdued USD price action might contribute to capping USD/JPY ahead of the US PCE data.
The Japanese Yen (JPY) attracts some sellers following an Asian session uptick and for now, seems to have snapped a two-day winning streak against its American counterpart. That said, any meaningful JPY depreciation seems elusive amid expectations that the Bank of Japan (BoJ) will hike interest rates further. The bets were reaffirmed by data released earlier this Friday, which showed that consumer prices in Tokyo – Japan’s capital – rose in January.
Moreover, Japanese Industrial Production registered unexpected growth in December and Retail Sales surged past consensus estimates. Adding to this, geopolitical risks could offer some support to the safe-haven JPY, which, along with subdued US Dollar (USD) price action, might keep a lid on the USD/JPY pair’s intraday move up. Traders now look forward to the US Personal Consumption Expenditure (PCE) Price Index for a fresh impetus.
Japanese Yen might continue to draw support from bets for additonal BoJ rate hike
- The Statistics Bureau of Japan reported this Friday that the headline Tokyo Consumer Price Index (CPI) accelerated from 3.0% to 3.4% YoY in January – the highest level since April 2023.
- Adding to this, core CPI, which excludes volatile fresh food prices, picked up from the 2.4% seen in December and rose 2.5% YoY during the reported month – representing an 11-month high.
- Meanwhile, a core CPI gauge that excludes both fresh food and energy prices remained close to the Bank of Japan’s 2% annual target and climbed 1.9% YoY in January from the 1.8% previous.
- BoJ Deputy Governor Ryozo Himino reiterated that real rates remain negative and that the central bank would consider more rate increases if economic and price developments align with expectations.
- State-run TASS news agency reported, citing the Russian Defense Ministry, that two Russian Tu-95 strategic bombers conducted a routine flight over the Sea of Okhotsk and the Sea of Japan on Thursday.
- According to the first estimate published by the US Bureau of Economic Analysis (BEA) on Thursday, the US Gross Domestic Product (GDP) grew at an annual rate of 2.3% in the fourth quarter.
- The reading marked a notable slowdown from the 3.1% expansion recorded in the previous quarter and was below the market expectation of 2.6%, though it did little to influence the US Dollar.
- US President Donald Trump reiterated his threat to impose 25% tariffs on Mexico and Canada – the top two US trade partners – and warned of potential 100% tariffs if BRICS attempts to replace the USD.
- Japan’s Prime Minister Shigeru Ishiba said on Friday that the government will continue to invest and create jobs in the US and further stated that he will urge the US to provide a stable energy supply.
- Concerns that Trump’s protectionist policies will boost inflation, along with the Federal Reserve’s hawkish outlook, provide a modest lift to the US Treasury bond yields, which underpin the buck.
- Investors now look forward to the release of the US Personal Consumption Expenditure (PCE) Price Index – the Fed’s preferred inflation gauge – for fresh impetus on the last day of the week.
USD/JPY might struggle to capitalize on the intraday move up beyond mid-154.00s
Against the backdrop of the recent breakdown below a short-term ascending trend channel, some follow-through selling below the monthly swing low, around the 153.70 area touched on Monday, will be seen as a key trigger for bearish traders. Moreover, oscillators on the daily chart have been gaining negative traction and are still away from being in the oversold zone. Hence, the subsequent downfall could drag the USD/JPY pair towards the 153.00 round figure en route to the 152.40 area and the 152.00 mark. The latter coincides with the 100-day Simple Moving Average (SMA) and could offer decent support to spot prices.
On the flip side, any attempted recovery above mid-154.00s now seems to confront a stiff barrier near the 155.00 psychological mark. A sustained strength, however, might trigger an intraday short-covering move towards the 155.40-155.45 region en route to the 156.00 round figure and the weekly top, around the 156.25 area. The next relevant hurdle is pegged near the 156.75 region, which if cleared decisively might shift the near-term bias in favor of bullish traders and pave the way for additional gains.
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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