The Japanese yen gains ground as the government funds energy subsidies

VaselineSeptember 3, 2024

0 4 minutes read

The Japanese yen gains ground as the government funds energy subsidies

The Japanese yen rises as the government will allocate 989 billion yen to fund energy subsidies.
The JPY faced challenges as weak Japanese manufacturing data fueled speculation that the BoJ could delay further rate hikes.
The US dollar is receiving support from improving Treasury yields.

The Japanese yen (JPY) ended its four-day losing streak, moving higher against the US dollar (USD) on Tuesday. However, the JPY faced headwinds as weak Japanese manufacturing data fueled speculation that the Bank of Japan (BoJ) may delay further interest rate hikes.

Japan will allocate 989 billion yen to fund energy subsidies in response to rising energy costs and resulting cost-of-living pressures. This government intervention could contribute to inflation. The Bank of Japan’s (BoJ) monetary policy stance was further strengthened by a recent rise in inflation in Tokyo. Meanwhile, Japanese companies reported a sharp increase in capital spending for the second quarter.

USD/JPY’s downside could be limited as the US dollar strengthens amid improving Treasury yields. Traders will focus on upcoming US employment data, particularly August non-farm payrolls (NFP), for more information on the potential timing and extent of Fed interest rate cuts.

Daily Digest Market Movers: Japanese yen higher on BoJ calls

The US Bureau of Economic Analysis reported on Friday that the Personal Consumption Expenditure (PCE) Price Index rose 2.5% year-on-year in July, matching the previous reading of 2.5% but below the 2. 6% Meanwhile, core PCE, which excludes volatile food and energy prices, rose 2.6% year-on-year in July, in line with the previous figure of 2.6% but slightly below the consensus forecast of 2, 7%
Tokyo’s consumer price index (CPI) rose to 2.6 percent year-on-year in August from 2.2 percent in July. Core CPI also rose to 1.6% YoY in August, compared to the previous 1.5%. In addition, Japan’s unemployment rate unexpectedly rose to 2.7 percent in July, up from both the market estimate and June’s 2.5 percent, marking the highest unemployment rate since August 2023.
Atlanta Federal Reserve Bank President Raphael Bostic, a prominent FOMC hawk, indicated last week that it might be “time to move” on rate cuts because of further declines in inflation and a higher-than-expected unemployment rate. FXStreet’s FedTracker, which rates the tone of Fed officials’ speeches on a scale of 0 to 10 using a custom AI model, rated Bostic’s words as neutral with a score of 5.6.
US Gross Domestic Product (GDP) grew at an annualized rate of 3.0% in the second quarter, beating both the forecast and the previous growth rate of 2.8%. In addition, initial jobless claims showed that the number of people filing for unemployment benefits fell to 231,000 in the week ended Aug. 23, down from 233,000 previously and slightly below the 232,000 expected.
Japan’s Finance Minister Shunichi Suzuki said last week that foreign exchange rates are influenced by a variety of factors, including monetary policies, interest rate differentials, geopolitical risks and market sentiment. Suzuki added that it is difficult to predict how these factors will affect exchange rates.

Technical Analysis: USD/JPY Tests 21-Day EMA Resistance Near 147.00

USD/JPY is trading around 146.70 on Tuesday. Daily chart analysis shows that the nine-day exponential moving average (EMA) is lower than the 21-day EMA, indicating a downtrend in the market. Additionally, the 14-day Relative Strength Index (RSI) remains below 50, indicating that the bearish trend is still in place.

In terms of support, USD/JPY could first test the nine-day exponential moving average (EMA) at around 145.91. If the pair breaks below this level, it could move towards the seven-month low of 141.69, recorded on August 5, and then find the next support level around 140.25.

On the other hand, the USD/JPY pair may test the immediate barrier at the 21-day EMA at 146.97. A break above this level could help the pair approach the psychological level of 150.00, followed by the 154.50 level, which has moved from support to 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 Australian dollar.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.05%	0.07%	-0.22%	0.12%	0.34%	0.37%	0.13%
EURO	-0.05%		0.00%	-0.24%	0.06%	0.27%	0.22%	0.06%
GBP	-0.07%	-0.01%		-0.25%	0.06%	0.26%	0.22%	0.07%
JPY	0.22%	0.24%	0.25%		0.32%	0.52%	0.38%	0.31%
CAD	-0.12%	-0.06%	-0.06%	-0.32%		0.19%	0.06%	0.00%
AUD	-0.34%	-0.27%	-0.26%	-0.52%	-0.19%		-0.16%	-0.20%
NZD	-0.37%	-0.22%	-0.22%	-0.38%	-0.06%	0.16%		-0.04%
CHF	-0.13%	-0.06%	-0.07%	-0.31%	-0.01%	0.20%	0.04%

The heatmap shows the percentage changes of 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. Troubled times are likely to strengthen the value of the yen against other currencies considered riskier to invest in.

VaselineSeptember 3, 2024

0 4 minutes read