The Japanese Yen (JPY) sticks to modest intraday recovery gains against its American counterpart through the Asian session on Friday, though any meaningful appreciation seems elusive. Comments from Japan’s Finance Minister Satsuki Katayama fueled speculations that authorities would step in to stem further JPY weakness. Apart from this, a generally weaker tone around the equity markets is seen underpinning the safe-haven JPY.
Meanwhile, Japan’s cabinet approves a ¥21.3 trillion economic stimulus package and adds to concerns about the country’s ailing fiscal position. Moreover, growing acceptance that the Bank of Japan (BoJ) would delay raising interest rates should contribute to capping the JPY. Meanwhile, the US Dollar (USD) sits near its highest level since late May amid less dovish Federal Reserve (Fed) expectations and could further support the USD/JPY pair.
Japanese Yen draws support from intervention warning,
- Japan’s Finance Minister Satsuki Katayama, in the strongest warning to date, said on Friday that we will take appropriate action as needed against excess volatility and disorderly market moves, including those in the long term. Katayama also signaled chances of currency intervention, providing a modest lift to the Japanese Yen during the Asian session.
- Earlier today, Japan’s Statistics Bureau reported that National Consumer Price Index (CPI) and the core gauge (excluding Fresh Food) rose by 3.0% in October from a year earlier. Further details revealed that core CPI (ex Fresh Food and Energy), which is closely watched by the Bank of Japan, arrived at 3.1% YoY compared to a 3.0% increase in September.
- The data suggests that inflation in Japan remains sticky above the central bank’s 2% target and keeps alive hopes for a near-term interest rate hike. Meanwhile, Bank of Japan Governor Kazuo Ueda said that the JPY weakness is increasingly feeding into import costs and consumer inflation, adding that currency swings have a bigger impact than in the past.
- A Reuters poll showed on Thursday that a slim majority of economists expect the BoJ to raise rates to 0.75% in December, with all forecasters seeing at least that level by the end of Q1 2026. However, the BoJ rate hike uncertainty persists amid Japan’s Prime Minister Sanae Takaichi’s expansionary fiscal policies and her preference for interest rates to stay low.
- Japan’s cabinet approved a ¥21.3 trillion economic stimulus plan, the first significant policy initiative under Prime Minister Sanae Takaichi. The package contains ¥17.7 trillion in general account outlays, which exceeds the previous year’s ¥13.9 trillion and represents the largest stimulus since the COVID pandemic. It will also include tax cuts totaling ¥2.7 trillion.
- Meanwhile, the US Bureau of Labor Statistics published the delayed Nonfarm Payrolls report on Thursday, which showed that the economy added 119,000 new jobs in September. The reading surpassed the market expectation of 50,000 and followed the 4,000 decrease (revised from +22,000) in August. The Unemployment Rate edged higher to 4.4% from 4.3%.
- Nevertheless, the data eased market concerns about a softening US labor market and further dampened bets for another interest rate cut by the Federal Reserve in December. The less dovish Fed expectations assists the US Dollar to preserve its strong weekly gains, to the highest level since late May, and should contribute to limiting losses for the USD/JPY pair.
USD/JPY needs to consolidate before the next leg up amid overbought daily RSI
The daily Relative Strength Index (RSI) is flashing slightly overbought conditions and holding back traders from placing fresh bullish bets around the USD/JPY pair. This makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for any further appreciating move.
In the meantime, any corrective slide might now find decent support just below the 157.00 mark ahead of the 156.65-156.60 region, below which the USD/JPY pair could fall towards the 156.00 mark. The latter should act as a pivotal point, which, if broken, should pave the way for deeper losses.
On the flip side, the 158.00 mark could act as an immediate hurdle, above which the USD/JPY pair could climb to the next relevant resistance near mid-158.00s. The momentum could extend further and allow spot prices to aim towards testing the January swing high, around the 159.00 neighborhood.
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.
Read the full article here