Japanese yen inches higher, upside appears limited on declining likelihood of BoJ rate hike

VaselineOctober 4, 2024

0 5 minutes read

Japanese yen inches higher, upside appears limited on declining likelihood of BoJ rate hike

The Japanese yen appreciates as the US dollar remains hot ahead of the release of US jobs data on Friday.
Japanese Economy Minister Akazawa said the timing of any monetary policy changes is crucial
Traders await Friday’s US employment data, including non-farm payrolls (NFP) and average hourly earnings, for further direction.

The Japanese yen (JPY) is retracing recent gains following comments from Japanese ministers on Friday. New Economy Minister Ryosei Akazawa said Prime Minister Shigeru Ishiba and the Bank of Japan (BoJ) agree that overcoming deflation is Japan’s top priority.

Economy Minister Akazawa added: “No change in the interpretation of the government-BoJ agreement targeting 2% inflation. The timing of the change in monetary policy is important and must align with Japan’s broader goal of exiting deflation.

Japan’s Chief Cabinet Secretary Yoshimasa Hayashi announced Friday that Prime Minister Ishiba has led the creation of a comprehensive economic package. Hayashi also mentioned that he plans to present a supplementary budget to Parliament following the lower house elections.

However, downside for the USD/JPY pair could be limited as the Japanese Yen could struggle due to the decreasing likelihood of further rate hikes by the Bank of Japan. Newly elected Prime Minister Ishiba said on Wednesday: “I don’t think we are in an environment that would require us to raise interest rates further,” according to Reuters.

Daily Digest Market Movers: Japanese yen gets downward pressure from upbeat mood around BoJ

The US dollar (USD) gained strength following better-than-expected US PMI and ADP job change reports that challenged accommodative expectations for Federal Reserve (Fed) monetary policy.
The CME FedWatch tool indicates that markets assign a 67.4% probability of a 25 basis point rate cut by the Federal Reserve in November, while the probability of a 50 basis point cut is 32.6% , down from 35.2% a day ago.
Federal Reserve Bank of Chicago President Austan Goolsbee reiterated Thursday that interest rates need to come down “very much” in the coming year. Goolsbee also said he would like to keep the unemployment rate at 4.2 percent and prevent further growth.
The US ISM services PMI rose to 54.9 in September from 51.5 in August and beating the market forecast of 51.7. Meanwhile, the Index of Prices Paid for Services, a key indicator of inflation, rose to 59.4 from 57.3.
Futures indicated a less than 50% chance the Bank of Japan would raise rates by 10 basis points by the end of 2024. Furthermore, rates are expected to reach just 0.5% by the end of next year in up from the current 0.25%, per Reuters.
BoJ board member Asahi Noguchi said the central bank “must patiently maintain loose monetary conditions.” Noguchi indicated that the BoJ is likely to make gradual adjustments to the level of monetary support, while carefully assessing whether inflation is sustainably reaching the 2 percent target, supported by wage growth.
The ADP US Employment Change report showed an increase of 143,000 jobs in September, beating the forecast of 120,000 jobs. In addition, annual salary increased by 4.7% year-over-year. The total number of jobs added in August was revised up from 99,000 to 103,000.
On Tuesday, the BoJ’s summary of views from September’s monetary policy meeting indicated there were no immediate plans for further rate hikes. The central bank plans to maintain its accommodative stance, but remains open to adjustments if economic conditions show significant improvement.

Technical analysis: USD/JPY nears 146.50, five-week high

USD/JPY is trading around 146.50 on Friday. Daily chart analysis shows that the pair may try to break out of the ascending channel pattern, indicating an upward consolidation trend. Additionally, the 14-day Relative Strength Index (RSI) remains above the 50 mark, reinforcing the continuation of the bullish trend.

On the upside, USD/JPY is facing resistance near the upper boundary of the ascending channel near the five-week high of 147.21, which was last touched on September 3. A break above this level could allow the pair to test its seven-week high at 149.40.

On the downside, USD/JPY may find support at the nine-day EMA around 144.97, followed by the lower limit of the ascending channel at 143.60. A break below this level could push the pair towards 139.58, marking the lowest point since June 2023.

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 the strongest against the euro.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.04%	-0.03%	-0.40%	0.01%	-0.13%	0.01%	-0.09%
EURO	-0.04%		-0.05%	-0.44%	-0.01%	-0.16%	-0.01%	-0.15%
GBP	0.03%	0.05%		-0.35%	0.08%	-0.12%	0.04%	-0.11%
JPY	0.40%	0.44%	0.35%		0.41%	0.25%	0.38%	0.26%
CAD	-0.01%	0.00%	-0.08%	-0.41%		-0.16%	0.02%	-0.16%
AUD	0.13%	0.16%	0.12%	-0.25%	0.16%		0.15%	-0.03%
NZD	-0.01%	0.01%	-0.04%	-0.38%	-0.02%	-0.15%		-0.16%
CHF	0.09%	0.15%	0.11%	-0.26%	0.16%	0.03%	0.16%

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 ultra-loose monetary policy between 2013 and 2024 caused the yen to depreciate against its major peers due to a growing policy divergence between the Bank of Japan and other major central banks. More recently, the gradual unwinding of this ultra-tight policy has provided some support to the yen.

Over the past decade, 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 supported a widening of the spread between US and Japanese 10-year bonds, which favored the US dollar against the Japanese yen. The BoJ’s decision in 2024 to phase out ultra-loose policy, coupled with interest rate cuts at other major central banks, narrows this gap.

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.

VaselineOctober 4, 2024

0 5 minutes read