USD/JPY is steadily coming back closer to the mid-143.00s, upside potential looks limited

VaselineSeptember 10, 2024

0 2 minutes read

USD/JPY is steadily coming back closer to the mid-143.00s, upside potential looks limited

USD/JPY is moving higher for the second day in a row and is getting support from a combination of factors.
A downward revision to Japan’s GDP print and a risk-on positive tone undermine the safe-haven JPY.
Low bets on a 50 bps Fed rate cut in September are pushing the dollar higher and providing further support.

USD/JPY is turning positive for the second day in a row after an early Asian session dip to the 142.85 region, although it lacks bullish convictions. Spot prices are currently trading in a slight uptrend just below the mid-143.00s and remain within striking distance of the one-month low hit last Friday.

The Japanese yen (JPY) continues to be undermined by data released on Monday that showed the economy grew at a slightly slower pace than initially reported in the second quarter. This could complicate the Bank of Japan’s (BoJ) plan to raise interest rates further in the coming months. Apart from this, a generally positive risk-on tone around equity markets is dampening demand for the safe-haven JPY and acting as a tailwind for the USD/JPY pair amid a buying interest in the US dollar (USD).

The USD index (DXY), which tracks the greenback against a basket of currencies, climbs to a multi-day high amid reduced bets for a bigger 50 basis point (bps) interest rate cut by the Reserve Federal (Fed) in September. However, markets have fully priced in a Fed rate cut move of at least 25 bps later this month. Instead, the BoJ is expected to raise interest rates again by the end of this year. This could prevent bullish traders from placing aggressive bets around USD/JPY and cap gains.

Investors may also prefer to sit on the sidelines and wait for the release of US consumer inflation figures on Wednesday before placing new directional bets. Therefore, a strong continuation buy is needed to confirm that the USD/JPY pair has formed a short-term low and positioning for any significant appreciation move amid the lack of relevant US macro data since Tuesday. That said, speeches from influential FOMC members could provide a boost later in the US session.

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.

VaselineSeptember 10, 2024

0 2 minutes read

Frequently Asked Questions about the Japanese Yen

Vaseline

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