USD/JPY returns to daily low, finds support near 148.00 amid upbeat USD

VaselineOctober 7, 2024

0 3 minutes read

USD/JPY corrects from near two-month high amid renewed intervention fears.
A return to risk-on sentiment further benefits the JPY and weighs on the pair.
Short bets on a 50 bps Fed rate cut next month should limit losses for the major.

USD/JPY is pulling back after hitting its August 16 high around the 149.10-149.15 area and extending the steady intraday decline in the first half of Monday’s European session. Spot prices, for now, appear to have snapped a three-day winning streak and dropped to the 148.00 mark, or a new daily low in the last hour. though you do recover a few pips afterwards.

The Japanese yen (JPY) is broadly stronger after comments from Japan’s Finance Ministry’s vice finance minister, Atsushi Mimura, fueled speculation about a possible intervention. Apart from this, a reversal in global risk sentiment, along with rising geopolitical tensions in the Middle East, is causing some refuge flows to the JPY and putting some downward pressure on the USD/JPY pair. The fundamental context, however, calls for some caution for bear traders and positioning for any further downside moves.

Japan’s new prime minister, Shigeru Ishiba, said last week that the country is not ready for further rate hikes. Additionally, the Bank of Japan (BoJ) board member offered a similar view last Thursday and raised uncertainty about future interest rate hikes. This, in turn, could limit the JPY. The US dollar (USD), on the other hand, remains supported near a seven-week high, hit by the reaction to Friday’s upbeat US jobs report, which forced investors to further reduce bets on another cut of the oversized rate by the Federal Reserve (Fed). This could further support the USD/JPY pair.

Traders may also prefer to sit on the sidelines ahead of this week’s release of Wednesday’s FOMC meeting minutes. Apart from that, US inflation numbers – Consumer Price Index (CPI) and Producer Price Index (PPI) on Thursday and Friday respectively – will be looked at for clues on the Fed’s rate cut trajectory. This, in turn, will play a key role in influencing USD price dynamics in the short term and provide further impetus to the USD/JPY pair. Meanwhile, Fedspeak will be scrutinized for near-term opportunities in the absence of any relevant data on Monday.

Bank of Japan FAQs

The Bank of Japan (BoJ) is Japan’s central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and perform exchange and monetary control to ensure price stability, which means an inflation target of around 2%.

The Bank of Japan engaged in ultra-loose monetary policy in 2013 to stimulate the economy and fuel inflation amid a low inflation environment. The bank’s policy is based on quantitative and qualitative easing (QQE) or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further relaxed policy by first introducing negative interest rates and then directly controlling the yield on its 10-year government bonds. In March 2024, the BoJ raised interest rates, effectively withdrawing from ultra-loose monetary policy.

The Bank’s massive stimulus has caused the yen to depreciate against its major peers. This process was exacerbated in 2022 and 2023 by a growing policy divergence between the Bank of Japan and other major central banks, which opted to raise interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening of spreads against other currencies, dragging down the value of the yen. This trend partially reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

A weaker yen and rising global energy prices led to a rise in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising wages in the country – a key element fueling inflation – also contributed to this move.

VaselineOctober 7, 2024

0 3 minutes read

Bank of Japan FAQs

Vaseline

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