USD/JPY trades slight losses near 147.00 ahead of US PPI data

VaselineAugust 13, 2024

0 2 minutes read

USD/JPY trades slight losses near 147.00 ahead of US PPI data

USD/JPY is down to around 147.10 in the first Asian session on Tuesday.
Rising geopolitical risks in the Middle East continue to support the JPY.
The US producer price index (PPI) for July will be in focus on Tuesday.

USD/JPY eases to near 147.10 during early Asian session on Tuesday. A modest decline in the US dollar (USD) drags the pair lower on the day. Expectations that the US Federal Reserve (Fed) will cut interest rates in September continue to weigh on the greenback in the short term.

Traders are abandoning bets on a double dip in September, according to CME’s FedWatch tool. Markets are now pricing in a less than 50% chance of a 50 basis point (bps) cut on September 18, down from 70% last week. However, rates markets are still pricing in a 100% chance of a cut of at least 25 basis points at the Fed’s September meeting.

The US producer price index (PPI), due on Tuesday, could provide some clues about the Fed’s rate outlook. PPI is expected to fall to 2.3% y/y in July from 2.6%, while core PPI is expected to fall to 2.7% y/y in July from the previous reading of 3 .0%. Hotter PPI could dampen rate cut expectations and limit USD downside.

On the other hand, current geopolitical risks in the Middle East could boost refuge flows, benefiting the Japanese Yen (JPY). The Israeli intelligence community believed that Iran had decided to attack Israel directly and could do so within days in retaliation for the assassination of Hamas leader Ismail Haniyeh in Tehran in late July.

Elsewhere, Japan’s PPI came in at 3.0% YoY in July, compared to the previous reading of 2.9%, in line with market consensus. On a monthly basis, the PPI rose 0.3% in July, up from 0.2% previously.

Frequently Asked Questions about the Japanese Yen

The Japanese Yen (JPY) is one of the most traded currencies in the world. Its value is largely determined by the performance of the Japanese economy, but more specifically by Bank of Japan policy, the difference 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 intervened directly in currency markets on occasion, generally to depress the yen, although it refrains from doing so because of the political concerns of its main trading partners. The BoJ’s current ultra-loose monetary policy, based on massive stimulus to the economy, has caused the yen to depreciate against its major peers. This process has been exacerbated more recently by a widening policy divergence between the Bank of Japan and other major central banks, which have opted to raise interest rates sharply to combat decades-high levels of inflation.

The BoJ’s stance of sticking to ultra-loose monetary policy has led to increased policy divergence with other central banks, particularly the US Federal Reserve. This supports a widening of the spread between US and Japanese 10-year bonds, which favors the US dollar against the Japanese yen.

The Japanese yen is often seen as a safe investment. This means that during times of market stress, investors are more likely to put their money into the Japanese currency due to its perceived reliability and stability. Troubled times are likely to strengthen the value of the yen against other currencies considered riskier to invest in.

VaselineAugust 13, 2024

0 2 minutes read

Frequently Asked Questions about the Japanese Yen

Vaseline

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