USD/JPY slips to near 146.00 on BoJ Ueda’s dovish interest rate comment

VaselineSeptember 3, 2024

0 2 minutes read

USD/JPY slips to near 146.00 on BoJ Ueda’s dovish interest rate comment

USD/JPY drops sharply to near 146.00 as BoJ Ueda offers firm interest rate guidance.
BoJ Ueda reiterated the need to raise interest rates further this year.
The Fed is now more focused on controlling downside risks to the US labor market.

USD/JPY drops sharply to near 146.00 in Tuesday’s North American session. The asset is facing selling pressure as the Japanese yen (JPY) strengthens following dovish comments from Bank of Japan (BoJ) Governor Kazuo Ueda on interest rates.

Kazuo Ueda reiterated in a document to a government committee on Tuesday that the central bank would not hesitate to raise interest rates further if the economy and inflation behaved as expected, Reuters reported. Inflationary pressures in the Japanese economy continue to remain stubborn. Tokyo’s consumer price index (CPI), excluding fresh food, released on Thursday rose at a faster pace to 2.4 percent in August, from estimates and the July release of 2.2 percent.

USD/JPY remains on the back foot despite further gains in the US dollar (USD). The US Dollar Index (DXY), which tracks the greenback against six major currencies, is climbing to a two-week high of 102.00.

The US dollar is rising as investors turn cautious ahead of the United States (US) Nonfarm Payrolls (NFP) data for August due out on Friday. Market participants will be paying close attention to official labor market data as the Federal Reserve (Fed) is now more focused on curbing job demand, with officials confident that price pressures will sustainably return to the bank’s target of 2%.

In today’s session, investors will focus on the US ISM manufacturing PMI data for August, which will be released at 14:00 GMT. Economists expect manufacturing activity to have contracted at a slower pace, with the PMI coming in at 47.5, down from 46.8 in July.

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

VaselineSeptember 3, 2024

0 2 minutes read

Frequently Asked Questions about the Japanese Yen

Vaseline

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