The Japanese yen gains ground as the US dollar remains weak ahead of the Fed’s interest rate decision

Vaseline4 weeks ago

0 5 minutes read

The Japanese yen gains ground as the US dollar remains weak ahead of the Fed’s interest rate decision

The Japanese Yen appreciates on ongoing bearish sentiment around the BoJ interest rate outlook.
Japan’s merchandise trade balance posted a trade deficit of ¥695.3 billion in August, below the forecast deficit of ¥1,380.0 billion.
The US dollar is receiving downward pressure from the Fed’s 50 basis point increase in discount rates on Wednesday.

The Japanese yen (JPY) is recovering losses against the US dollar on rising expectations of a 50 basis point Federal Reserve (Fed) rate cut on Wednesday. Traders will shift their focus to the BoJ’s policy decision on Friday, with expectations to keep rates unchanged while leaving open the possibility of further rate hikes.

Japan’s merchandise trade balance posted a larger trade deficit of ¥695.30 billion in August, up from ¥628.70 billion the previous month, but well below market expectations of a ¥1,380.0 billion deficit . Exports rose 5.6% year-on-year, marking the ninth consecutive month of growth, but fell short of the anticipated 10.0%. Imports rose just 2.3 percent, the slowest pace in five months, significantly beating the expected 13.4 percent increase.

The US dollar remains under pressure amid growing expectations that the Federal Open Market Committee (FOMC) could announce a substantial 50 basis point rate cut on Wednesday. The CME FedWatch tool indicates that markets assign a 33.0% probability of a 25 basis point cut, while the probability of a 50 basis point cut rose to 67.0% from 62.0% just the day before.

Daily Digest Market Movers: Japanese yen appreciates on favorable Fed policy outlook

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.
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. This increase reflects a gradual improvement in consumers’ outlook on 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 drops to near 141.50; next support at 14-month lows

USD/JPY is trading around 141.40 on Wednesday. Analysis of the daily chart shows that the pair is trending down in a descending channel, confirming a bearish outlook. The 14-day Relative Strength Index (RSI), a momentum indicator, rose above the 30 level, suggesting the potential for an upward correction in the near future.

In terms of support, USD/JPY may find immediate support at 139.58, the June 2023 low. This is followed by the lower limit of the descending channel around 138.20.

On the other hand, USD/JPY may first face resistance at the nine-day EMA near the 142.14 level, followed by the 21-day EMA around 143.72. A break above these EMAs could weaken bearish sentiment, potentially causing the pair to test the upper limit of the descending channel at 145.10.

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 US dollar.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.12%	-0.04%	-0.74%	-0.07%	-0.16%	-0.33%	-0.27%
EURO	0.12%		0.07%	-0.63%	0.05%	-0.03%	-0.23%	-0.14%
GBP	0.04%	-0.07%		-0.69%	-0.03%	-0.10%	-0.31%	-0.19%
JPY	0.74%	0.63%	0.69%		0.66%	0.59%	0.42%	0.51%
CAD	0.07%	-0.05%	0.03%	-0.66%		-0.09%	-0.28%	-0.17%
AUD	0.16%	0.03%	0.10%	-0.59%	0.09%		-0.17%	-0.09%
NZD	0.33%	0.23%	0.31%	-0.42%	0.28%	0.17%		0.08%
CHF	0.27%	0.14%	0.19%	-0.51%	0.17%	0.09%	-0.08%

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.

Vaseline4 weeks ago

0 5 minutes read