- The Japanese Yen remains on the front foot against a softer USD for the third straight day.
- Bets that the BoJ will hike rates again and a weaker risk tone underpin the safe-haven JPY.
- The emergence of fresh USD selling also exerts downward pressure on the USD/JPY pair.
The Japanese Yen (JPY) retains its positive bias for the third straight day against a mildly weaker US Dollar (USD) and drags the USD/JPY pair back to the 146.00 mark during the Asian session on Thursday. Fears of more entrenched price increases in Japan, along with the Bank of Japan (BoJ) Deputy Governor Shinichi Uchida’s hawkish comments earlier this week, back the case for further policy tightening. Apart from this, a slight deterioration in the global risk sentiment – as depicted by a softer tone around the equity markets – turned out to be a key factors underpinning the safe-haven JPY.
The USD, on the other hand, struggles to capitalize on the overnight bounce from the weekly low as traders opt to wait for the release of the US Producer Price Index (PPI) and Federal Reserve (Fed) Chair Jerome Powell’s speech. This further contributes to the offered tone surrounding the USD/JPY pair. However, the optimism over the de-escalation of the US-China trade war might keep a lid on any further gains for the JPY. Furthermore, reduced bets for more aggressive policy easing by the Fed could support the USD and help limit any further depreciating move for the currency pair.
Japanese Yen continues to outperform amid hawkish BoJ expectations
- Japan’s Producer Price Index (PPI) released on Wednesday highlighted persistent price pressure and backs the case for further monetary policy normalization by the Bank of Japan. Moreover, BoJ Deputy Governor Shinichi Uchida reiterated that the central bank will keep raising rates if the economy and prices improve as projected.
- Meanwhile, investors turned cautious ahead of Thursday’s release of the US Producer Price Index and Federal Reserve Chair Jerome Powell’s appearance later during the North American session. This further contributes to the Japanese Yen’s relative outperformance against its American counterpart for the third consecutive day.
- In the meantime, a softer-than-expected US Consumer Price Index released on Tuesday reaffirmed market bets that the Fed will cut interest rates further. This, in turn, fails to assist the US Dollar to capitalize on the overnight bounce from the weekly low and further contributes to the offered tone surrounding the USD/JPY pair.
- Traders, however, have scaled back their expectations for a more aggressive policy easing by the Fed in the wake of the US-China trade optimism, which helped to ease recession fears. This might hold back the USD bears from placing fresh bets and keep a lid on any further appreciating move for the safe-haven JPY.
- Chicago Fed President Austan Goolsbee noted that some parts of the April inflation report represent the lagged nature of the data, and it will take time for current inflation trends to show up in the data. Right now is a time for the Fed to wait for more information, try to get past the noise in the data, Goolsbee added further.
- Separately, Fed Vice Chair Philip Jefferson said that the recent inflation data is consistent with further progress toward the 2% goal, but the future path remains uncertain due to trade tariffs. Jefferson also noted that the current moderately restrictive policy rate is in a good place to respond to economic developments.
- Furthermore, San Francisco Fed President Mary Daly said that solid growth, a solid labor market, and declining inflation are where we want to be. Monetary policy is well-positioned, moderately restrictive, and the Fed can respond to whatever comes into the economy, Daly added further.
USD/JPY could aim to retest the weekly low once 146.00 is broken
From a technical perspective, the USD/JPY pair struggles to capitalize on the overnight bounce beyond the 23.6% Fibonacci retracement level of the recovery from the year-to-date low set in April. Moreover, negative oscillators on hourly charts support prospects for a further intraday slide below the 146.00 mark, towards retesting the 145.60 area or the weekly low set on Wednesday. This is followed by the 38.2% Fibo. level, around the 145.35-145.30 region, below which spot prices could fall to the 145.00 psychological mark en route to the 144.70-144.65 zone. The latter represents the 200-period Simple Moving Average (SMA) resistance breakpoint on the 4-hour chart and should act as a key pivotal point. A convincing break below will suggest that the recent recovery from the year-to-date low has run out of steam and pave the way for deeper losses.
On the flip side, the 146.60 area (23.6% Fibo. level) could offer immediate resistance ahead of the 147.000 round figure. A sustained strength beyond the latter might trigger an intraday short-covering rally and lift the USD/JPY pair to the 147.70 intermediate hurdle en route to the 148.00 round figure. Any further move up beyond the 148.25-148.30 hurdle might face stiff resistance near the 148.65 area, or over a one-month peak touched on Monday, which, if cleared, should allow spot prices to reclaim the 149.00 mark.
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.
