USD/JPY Holds Positive Ground Above 145.00 Despite Firmer Fed Rate Cut Expectations

VaselineAugust 22, 2024

0 2 minutes read

USD/JPY Holds Positive Ground Above 145.00 Despite Firmer Fed Rate Cut Expectations

USD/JPY is gaining ground near 145.35 in the first Asian session on Wednesday.
The Fed Minutes indicated that the US central bank opened the door to a rate cut in September.
Japan’s Jibun Bank manufacturing PMI rose to 49.5 in August from 49.8 expected; The services PMI improved to 54.0 in August.

USD/JPY is trading on a stronger note around 145.35 during the early Asian session on Thursday. A record of Japan’s trade deficit data sent the Japanese yen (JPY) lower and supported USD/JPY. On Friday, traders will be closely watching Bank of Japan (BoJ) Governor Kazuo Ueda’s speech and Fed Chairman Jerome Powell’s Jackson Hole speech. These events are likely to trigger market volatility.

Minutes of the Federal Reserve’s (Fed) July 30-31 meeting, released on Wednesday, indicated that most Fed officials agreed last month that they were likely to cut their benchmark interest rate at the next meeting in September as long as inflation continued to cool down. Policymakers kept the benchmark rate at 5.3% in July, where it has stood for more than a year. Markets are fully pricing in a September rate cut, with a full percentage point of rate cuts anticipated by the end of this year. Rising expectations of a Fed rate cut could hurt the greenback and limit USD/JPY upside in the near term.

On the other hand, most economists expect the BoJ to raise interest rates again by the end of the year. The median forecast for the year-end rate is 0.50 percent, marking a rise of 25 basis points (bps), according to a Reuters poll on Wednesday. Traders will take more cues from BoJ Governor Ueda’s appearance in parliament on Friday. If Ueda makes such remarks, this could lift the JPY against the USD.

Data released Thursday by Jibun Bank and S&P Global showed Japan’s preliminary Manufacturing Purchasing Managers’ Index (PMI) rose to 49.5 in August from 49.1 in July, but below the market consensus of 49.8. Meanwhile, the services PMI improved to 54.0 in August from 53.7 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 periods of market stress, investors are more likely to put their money into the Japanese currency due to its supposed reliability and stability. Troubled times are likely to strengthen the value of the yen against other currencies considered riskier to invest in.

VaselineAugust 22, 2024

0 2 minutes read

Frequently Asked Questions about the Japanese Yen

Vaseline

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