The Japanese yen appreciates as economic growth raises the chances of another rate hike by the BoJ

VaselineAugust 16, 2024

0 5 minutes read

The Japanese yen appreciates as economic growth raises the chances of another rate hike by the BoJ

The Japanese Yen advances on increasing chances of another rate hike by the BoJ.
Due to political uncertainty, the yen may face challenges; Prime Minister Fumio Kishida will not seek re-election in September.
The US dollar is under pressure from falling US Treasury yields and growing bets on a Fed rate cut.

The Japanese yen (JPY) bounced back against the US dollar (USD) on Friday, potentially on the back of Japan’s recent second-quarter GDP growth, which supports the possibility of a near-term interest rate hike by the Bank of Japan. (BoJ).

However, the JPY could face challenges due to political uncertainty in Japan, sparked by reports that Prime Minister Fumio Kishida will not seek re-election as party leader in September, effectively ending his tenure as prime minister.

USD/JPY falls as the US dollar loses ground amid lower Treasury yields. Additionally, traders are fully pricing in a 25 basis point rate cut by the US Federal Reserve for September, according to the CME FedWatch tool.

However, the greenback received support as recent better-than-expected US economic data eased market concerns about a recession in the United States (US). Furthermore, Michigan’s preliminary US consumer sentiment index for August and building permits for July will be analyzed later in the North American session.

Daily Digest Market Movers: Japanese yen advances on mixed mood surrounding BoJ

On Thursday, the U.S. Census Bureau reported that U.S. retail sales rose 1.0 percent month-on-month in July, a sharp turnaround from June’s 0.2 percent decline, beating estimates of a 0 .3%. Moreover, initial jobless claims for the week ended August 9 came in at 227,000, less than the forecast of 235,000 and down from 234,000 the previous week.
On Thursday, Japan’s Economy Minister Yoshitaka Shindo said the economy is expected to recover gradually as wages and incomes improve. Shindo also added that the government will work closely with the Bank of Japan to implement flexible macroeconomic policies.
Japan’s Gross Domestic Product (GDP) rose 0.8% quarterly in Q2, beating market forecasts of 0.5% and rebounding from a 0.6% decline in Q1. This marked the strongest quarterly growth since the first quarter of 2023. Meanwhile, annualized GDP growth reached 3.1%, beating the market consensus of 2.1% and reversing a 2.3% contraction in Q1. This was the strongest annual expansion in Q2 since 2023.
Federal Reserve Bank of Chicago President Austan Goolsbee on Wednesday expressed growing concern about the labor market rather than inflation, noting recent improvements in price pressures alongside weak jobs data. Goolsbee added that the extent of rate cuts will be determined by prevailing economic conditions, according to Bloomberg.
The US consumer price index (CPI) rose 2.9% year-on-year in July, down slightly from June’s 3% rise and below market expectations. Core CPI, which excludes food and energy, rose 3.2 percent year-on-year, down slightly from June’s 3.3 percent rise but in line with market forecasts.
Japanese Prime Minister Fumio Kishida announced in a press conference on Wednesday that he will not seek re-election as leader of the Liberal Democratic Party (LDP) in September. Kishida stressed the need to combat Japan’s deflation-prone economy by promoting wage growth and investment and achieving the goal of expanding Japan’s GDP to ¥600 trillion.
Rabobank senior FX strategist Jane Foley notes that this week’s series of US data, along with next week’s Jackson Hole event, should give the market a clearer view of potential responses from US policymakers. However, their main expectation is for the Fed to cut rates by 25 basis points in September and likely cut them again before the end of the year.

Technical analysis: USD/JPY falls to 148.50; the next support at the nine-day EMA

USD/JPY is trading around 148.80 on Friday. According to the daily chart analysis, the pair is above the nine-day exponential moving average (EMA), signaling a short-term bullish trend. However, the 14-day Relative Strength Index (RSI) remains below 50 and a further rise would confirm bullish momentum.

In terms of support levels, USD/JPY may find immediate support at the nine-day EMA around 148.09. If the pair breaks below this level, it could strengthen the bearish outlook and push the pair towards the seven-month low of 141.69 recorded on August 5. A continued decline could bring the pair closer to the next support level at 140.25.

On the other hand, the USD/JPY pair could target the 50-day EMA at 153.08 with the possibility of testing the resistance level at 154.50, which has moved from the previous pullback support to the current pullback resistance.

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 Canadian dollar.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.07%	-0.14%	-0.30%	-0.05%	-0.17%	-0.21%	-0.17%
EURO	0.07%		-0.07%	-0.25%	0.00%	-0.13%	-0.27%	-0.08%
GBP	0.14%	0.07%		-0.19%	0.08%	-0.05%	-0.18%	-0.01%
JPY	0.30%	0.25%	0.19%		0.32%	0.14%	-0.01%	0.14%
CAD	0.05%	0.00%	-0.08%	-0.32%		-0.13%	-0.29%	-0.12%
AUD	0.17%	0.13%	0.05%	-0.14%	0.13%		-0.14%	0.02%
NZD	0.21%	0.27%	0.18%	0.00%	0.29%	0.14%		0.18%
CHF	0.17%	0.08%	0.01%	-0.14%	0.12%	-0.02%	-0.18%

The heat map shows the percentage changes of the 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 16, 2024

0 5 minutes read