USD/JPY dips near 146.00 on weaker US dollar, BoJ hawkish

VaselineAugust 20, 2024

0 2 minutes read

USD/JPY dips near 146.00 on weaker US dollar, BoJ hawkish

USD/JPY extends lower around 146.05 in the first Asian session on Tuesday.
Growing bets on Fed rate cuts in September are putting some selling pressure on the USD and pulling the pair lower.
Dovish BoJ remains supportive of JPY vs USD.

USD/JPY is trading in negative territory for a third straight day near 146.05 during Asian trading hours on Tuesday. The pair’s decline is broadly supported by a weaker US dollar (USD). Traders will be watching Japan’s national consumer price index (CPI) for July and Federal Reserve (Fed) Chairman Jerome Powell’s speech on Friday.

Meanwhile, the USD Index (DXY), a measure of the greenback’s value against a basket of foreign currencies, is falling to a multi-day low around 101.85, creating a headwind for the USD/ JPY. Investors see the US Fed starting to ease policy in September. According to the CME FedWatch tool, markets now peg a near 77% chance of a 25 basis point (bps) rate cut in September and expect a 200 basis point (bps) cut over the next 12 months, though that will depend on the data received.

On the JPY front, Japan’s upbeat Q2 GDP and a potential rate hike by the Bank of Japan (BoJ) in the near term are underpinning the Japanese yen (JPY). Kazutaka Maeda, an economist at the Meiji Yasuda Research Institute, said the reports were simply positive overall and “support the BoJ’s view and bode well for further rate hikes, although the central bank would remain cautious as the last rate increase caused a sudden rate increase. top of the yen.”

Last week, Japanese Economy Minister Yoshitaka Shindo noted that the Japanese economy is expected to recover gradually as wages and incomes improve. Shindo also stated that the government will work closely with the BoJ to implement a flexible monetary policy in the future.

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. Troubled times are likely to strengthen the yen against other currencies considered riskier to invest in.

VaselineAugust 20, 2024

0 2 minutes read

Frequently Asked Questions about the Japanese Yen

Vaseline

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