Japanese yen extends losses despite hawkish sentiment around BoJ

VaselineAugust 27, 2024

0 5 minutes read

Japanese yen extends losses despite hawkish sentiment around BoJ

The Japanese Yen is in decline despite a mixed mood surrounding the BoJ’s policy outlook.
JPY’s downside could be limited as traders expect the BoJ to raise interest rates further.
US Fed Chairman Powell has signaled an interest rate cut soon, putting downward pressure on the US dollar.

The Japanese yen (JPY) continued to lose ground against the US dollar (USD) for the second day in a row on Tuesday. However, the JPY’s downside could be narrowed due to the mood surrounding the Bank of Japan (BoJ).

Additionally, contrasting statements from the BoJ and the Federal Reserve (Fed) on their policy outlooks are putting downward pressure on the USD/JPY pair. BoJ Governor Kazuo Ueda told Parliament on Friday that the central bank could raise interest rates further if its economic forecasts are correct.

Meanwhile, Fed Chairman Jerome Powell told the Jackson Hole Symposium: “The time has come for policy to adjust.” However, Powell did not specify when the rate cuts would begin or their potential size. In addition, San Francisco Federal Reserve President Mary Daly said in an interview with Bloomberg TV on Monday that “the time has come” to start cutting interest rates, possibly starting with a quarter-percentage point cut.

Daily Digest Market Movers: Japanese yen slips lower despite dovish BoJ

According to the CME FedWatch tool, markets fully anticipate a rate cut of at least 25 basis points (bps) by the Federal Reserve at its September meeting.
Japan’s Finance Minister Shunichi Suzuki said on Tuesday that foreign exchange rates are influenced by a variety of factors, including monetary policies, interest rate differentials, geopolitical risks and market sentiment. Suzuki added that it is difficult to predict how these factors will affect exchange rates.
US durable goods orders rose 9.9% month over month in July, rebounding from a 6.9% decline in June. This increase significantly exceeded the expected increase of 4.0%, marking the biggest gain since May 2020.
Bloomberg reported on Friday that Philadelphia Fed President Patrick Harker stressed the need for the US central bank to gradually lower interest rates. Meanwhile, Reuters reported that Chicago Fed President Austan Goolsbee noted that monetary policy is currently at its most restrictive, with the Fed now focusing on meeting its hiring mandate.
Bank of Japan (BoJ) Governor Kazuo Ueda addressed the Japanese parliament on Friday, saying he “does not consider selling long-term Japanese government bonds (JGBs) as a tool to adjust interest rates.” He noted that any reduction in JGB purchases would only represent about 7-8% of the balance sheet, which is a relatively small drop. Ueda added that if the economy lines up with their projections, there could be a phase where they could adjust interest rates a bit more.
Japan’s national consumer price index rose 2.8 percent year-on-year in July, maintaining that rate for the third straight month and remaining at its highest level since February. In addition, the national CPI excluding fresh food rose 2.7%, the most since February, in line with expectations.
The US composite PMI fell to 54.1 in August, a four-month low, from 54.3 in July, but remained above market expectations of 53.5. This indicates continued expansion in US business activity, marking 19 consecutive months of growth.
The minutes of the FOMC’s July policy meeting 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.

Technical analysis: USD/JPY is testing a psychological level at 145.00

USD/JPY is trading around 144.90 on Tuesday. Analysis of the daily chart shows that the pair is testing the downtrend line, suggesting a bearish trend. However, the 14-day Relative Strength Index (RSI) remains slightly above 30, suggesting confirmation of a bearish trend.

On the downside, if USD/JPY holds below the downtrend line, it could oscillate around the seven-month low of 141.69 hit on August 5. A break below this level could push the pair towards the rebound support at 140.25.

In terms of resistance, the USD/JPY pair may challenge the immediate barrier at the nine-day exponential moving average (EMA) around the 145.67 level. A break above this level could pave the way for the pair to explore the area near the reversal resistance at 154.50.

USD/JPY: Daily chart

Japanese Yen PRICE Today

The table below shows the percentage change of the Japanese Yen (JPY) against the major listed currencies today. The Japanese yen was weakest against the New Zealand dollar.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.07%	-0.02%	0.20%	-0.05%	-0.11%	-0.12%	-0.00%
EURO	0.07%		0.05%	0.26%	0.00%	-0.03%	-0.07%	0.07%
GBP	0.02%	-0.05%		0.23%	-0.02%	-0.08%	-0.10%	0.02%
JPY	-0.20%	-0.26%	-0.23%		-0.25%	-0.31%	-0.34%	-0.21%
CAD	0.05%	-0.01%	0.02%	0.25%		-0.06%	-0.08%	0.06%
AUD	0.11%	0.03%	0.08%	0.31%	0.06%		-0.04%	0.11%
NZD	0.12%	0.07%	0.10%	0.34%	0.08%	0.04%		0.12%
CHF	0.00%	-0.07%	-0.02%	0.21%	-0.06%	-0.11%	-0.12%

The heatmap shows the percentage changes of major currencies against each other. The base currency is chosen from the left column, while the quoted currency is chosen from the top row. For example, if you choose the Japanese yen in the left column and move along the horizontal line to the US dollar, the percentage change shown in the box will be JPY (base)/USD (quote).

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 fight 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. The troubled times are likely to strengthen the value of the yen against other currencies considered riskier to invest in.

VaselineAugust 27, 2024

0 5 minutes read