Japanese Yen Holds Ground Amid Increasing Chances of Federal Reserve Interest Rate Cut

VaselineSeptember 17, 2024

0 5 minutes read

Japanese Yen Holds Ground Amid Increasing Chances of Federal Reserve Interest Rate Cut

The Japanese yen is receiving support from ongoing bearish sentiment around the Bank of Japan’s interest rate outlook.
Japan’s Shunichi Suzuki said the government would continue to assess the stronger JPY and respond if necessary.
The CME FedWatch tool suggests the odds of a 50-basis-point Fed rate cut have risen to 62.0%.

The Japanese yen (JPY) remained solid for a sixth straight day against the US dollar (USD) on Tuesday, driven by dovish sentiment around the Bank of Japan’s interest rate outlook. Traders await the BoJ’s policy decision on Friday, with expectations to keep rates unchanged while leaving open the possibility of rate hikes in October and December.

Japanese Finance Minister Shunichi Suzuki said on Tuesday that rapid fluctuations in the exchange rate were undesirable. Suzuki stressed that officials will closely monitor how currency movements affect the Japanese economy and people’s livelihoods. The government will continue to assess the impact of a stronger Japanese yen and respond accordingly, according to Reuters.

The US dollar remains under pressure as expectations rise that the Federal Open Market Committee (FOMC) may opt for a significant 50 basis point interest rate cut on Wednesday. According to the CME FedWatch tool, markets have a 38.0% chance of a 25-basis-point interest rate cut by the Federal Reserve at the September meeting, while the probability of a 50-basis-point cut has risen to 62, 0%, up from 50.0% just a day earlier.

Daily Digest Market Movers: Japanese yen remains solid amid accommodative Fed

Rabobank economists Jane Foley and Molly Schwartz pointed out on Monday that net long JPY positions were at their highest level since October 2016. While there are minimal expectations for a rate hike from the Bank of Japan at its September 20 policy meeting, traders they will be close. watching for any hints that October might be a more active date.
Commerzbank FX analyst Volkmar Baur predicted the Bank of Japan would remain on the sidelines this week. Baur noted that the Federal Reserve’s actions could have a bigger impact on the USD/JPY pair, suggesting that the JPY could have a strong chance of falling below 140.00 per USD even without a rate hike from the BoJ.
On Friday, Fitch Ratings’ latest report on the Bank of Japan’s policy outlook suggested the BoJ could raise rates to 0.5% by the end of 2024, 0.75% in 2025 and 1.0% by the end of 2026 .
The University of Michigan’s consumer sentiment index rose to 69.0 in September, beating market expectations of a 68.0 reading and marking a four-month high. The increase reflects a gradual improvement in consumers’ outlook for the US economy after months of declining economic expectations.
BoJ policy chief Naoki Tamura said on Thursday that the central bank should raise interest rates to at least 1 percent as early as the second half of the next fiscal year. This comment reinforces the BoJ’s commitment to continued monetary tightening.
The US producer price index (PPI) rose 0.2% month-on-month in August, beating the forecast 0.1% rise and the previous 0.0%. Meanwhile, the core PPI accelerated to 0.3% on the month, versus the expected 0.2% increase and July’s 0.2% decline.

Technical analysis: USD/JPY remains warm around 140.50 amid 14-month lows

USD/JPY is trading around 140.60 on Tuesday. An analysis of the daily chart showed that the USD/JPY pair is moving down in a descending channel, indicating a confirmed bearish trend. The 14-day Relative Strength Index (RSI), a momentum indicator, is positioned below the 30 level, suggesting an oversold situation for the pair and potential for an upward correction soon.

In terms of support, USD/JPY is testing 140.25, which is the lowest level since July 2023, followed by the psychological level of 140.00. A successful break below this level could reinforce the bearish trend and put pressure on the pair to test the lower limit of the descending channel at the 138.30 level.

On the other hand, USD/JPY may first encounter a barrier at the nine-day EMA around 141.95, followed by the 21-day EMA at 143.78. A break above these EMAs could weaken bearish sentiment and push the pair to test the upper limit of the descending channel at 145.40.

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 New Zealand dollar.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.09%	0.11%	0.08%	0.08%	0.12%	0.20%	-0.02%
EURO	-0.09%		0.03%	-0.02%	-0.05%	0.03%	0.11%	-0.10%
GBP	-0.11%	-0.03%		-0.02%	-0.03%	0.01%	0.11%	-0.15%
JPY	-0.08%	0.02%	0.02%		-0.01%	0.04%	0.13%	-0.12%
CAD	-0.08%	0.05%	0.03%	0.01%		0.05%	0.14%	-0.11%
AUD	-0.12%	-0.03%	-0.01%	-0.04%	-0.05%		0.08%	-0.17%
NZD	-0.20%	-0.11%	-0.11%	-0.13%	-0.14%	-0.08%		-0.25%
CHF	0.02%	0.10%	0.15%	0.12%	0.11%	0.17%	0.25%

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 17, 2024

0 5 minutes read