USD/JPY trades sideways above 147.00 as global recession fears ease

VaselineAugust 9, 2024

0 2 minutes read

USD/JPY trades sideways above 147.00 as global recession fears ease

USD/JPY is trading back and forth above 147.00 as investors look for fresh guidance on the Fed’s rate cut path.
Market speculation for Fed rate cuts in September appears imminent.
The BoJ has acknowledged the need to raise interest rates further this year.

USD/JPY is trading in a tight range above 147.00 in the European session on Friday. The asset is strengthening as investors look for fresh clues about how much the Federal Reserve (Fed) will cut interest rates this year.

The Fed looks certain to start cutting its key lending rates in September. While investors are divided on whether the size of the rate cut will be a quarter or half to one percent.

According to CME’s FedWatch tool, data on 30-day Federal Funds Futures prices show traders see a 56.5% chance that interest rates will be cut by 50 bps in September, down from 74% a year ago week.

Market speculation for a 50-basis-point Fed rate cut eased slightly as fears of a global slowdown eased after the release of lower-than-expected initial jobless claims in the United States (US). The data indicated that labor market conditions did not ease much, as the non-farm payrolls (NFP) report for July showed.

A drop in the outlook for a 50 basis point Fed rate cut provided some relief for the US dollar (USD). The U.S. dollar index (DXY), which tracks the greenback against six major currencies, is lower in European trading hours on Friday, but is holding its recovery above 103.00.

Meanwhile, the outlook for the Japanese yen remains firm on expectations that the Bank of Japan (BoJ) may raise interest rates further this year. On Thursday, the Bank of Japan’s (BoJ) Summary of Opinions (SoP) indicated that officials acknowledged the need for more rate hikes at the July 30-31 meeting to ease inflationary pressures driven by higher import prices.

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 yen against other currencies considered riskier to invest in.

VaselineAugust 9, 2024

0 2 minutes read

Frequently Asked Questions about the Japanese Yen

Vaseline

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