USD/JPY reaches near 145.00 as the US dollar bounces back strongly

VaselineAugust 28, 2024

0 2 minutes read

USD/JPY reaches near 145.00 as the US dollar bounces back strongly

USD/JPY rises near 145.00 as the US dollar recovers strongly.
Upbeat US consumer confidence eases fears of US hard landing.
Investors await Tokyo CPI and US PCE core inflation for July.

USD/JPY climbs to near 145.00 in the North American session on Wednesday. The asset is strengthening as the US dollar (USD) offers a strong recovery move after hitting a new yearly low. The USD is recovering as upbeat US consumer confidence data for August eased fears of a crash landing.

Market pundits began anticipating a hard landing for the US economy after July’s US Nonfarm Payrolls (NFP) report showed a slowdown in job demand and a sharp rise in the unemployment rate. Hard landing is a scenario where the economy goes into recession in an attempt to reduce inflation to the bank’s target.

The US Conference Board showed on Tuesday that consumer confidence rose to 103.30 in August, beating expectations of 100.7. The sentiment indicator shows individuals’ confidence in the economic outlook.

Meanwhile, market sentiment appears to be risk-off as investors turn cautious ahead of July’s core US personal consumption expenditure (PCE) price index data due on Friday. The S&P 500 posted nominal losses in the North American session. The US Dollar Index (DXY), which tracks the value of the greenback against six major currencies, rebounded strongly above 101.00 from a new annual low of 100.50.

Core inflation data is expected to influence market speculation for the Federal Reserve’s (Fed) interest rate cut path. Financial markets currently expect the Fed to start cutting interest rates at the September meeting. Traders remain divided on the likely size of the rate cut.

On the Japanese yen (JPY) front, investors await Tokyo’s consumer price index (CPI) data for August, which will be released on Friday. The data is expected to show that Tokyo’s CPI, excluding fresh food, rose a steady 2.2 percent in August. Inflation data will influence market speculation for the Bank of Japan’s (BoJ) interest rate hike path.

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 value of the yen against other currencies considered riskier to invest in.

VaselineAugust 28, 2024

0 2 minutes read

Frequently Asked Questions about the Japanese Yen

Vaseline

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