The Japanese yen is losing ground as the BoJ appears to be in no rush to raise rates

VaselineSeptember 23, 2024

0 5 minutes read

The Japanese yen is losing ground as the BoJ appears to be in no rush to raise rates

The Japanese yen is depreciating, likely due to weak trading conditions stemming from Monday’s holiday.
BoJ Governor Ueda said the central bank will continue to adjust the level of monetary easing as needed.
The US dollar is getting support as Treasury yields improve.

The Japanese yen (JPY) extended its losses for a third consecutive session in light holiday trading on Monday. This downward move may be influenced by growing concerns that the Bank of Japan (BoJ) is in no rush to raise interest rates.

The Bank of Japan kept its interest rate target in the 0.15-0.25% range at Friday’s meeting. BoJ Governor Kazuo Ueda stressed that the central bank “will continue to adjust the level of monetary easing as necessary to achieve our economic and inflation targets.” Ueda acknowledged that while Japan’s economy is showing moderate recovery, there are still signs of underlying weakness.

The US Dollar (USD) continues to rise as Treasury yields recover losses. However, the Greenback may face challenges due to growing expectations for further rate cuts by the US Federal Reserve (Fed) in 2024. According to the CME FedWatch tool, markets are pricing in a 50% chance of a 50% rate cut basis points to a range of 4.0-4.25% by the end of this year.

Daily Digest Market Movers: Japanese yen depreciates on fears BoJ will delay rate hikes

Japan’s new “top foreign exchange diplomat”, Atsushi Mimura, said in an interview with NHK that the yen trades built up in the past were likely to be largely undone. Mimura warned that if such trades increased again, it could lead to increased market volatility. “We are always monitoring the markets to make sure this does not happen,” he added.
On Friday, Philadelphia Fed President Patrick Harker said the US central bank had effectively steered through a challenging economic landscape in recent years. Harker compared monetary policy to driving a bus, where balancing speed is essential.
Japan’s Finance Minister Shunichi Suzuki said on Friday that he would “continue to monitor and analyze the impact of the latest US interest rate cut on the Japanese economy and financial markets.” Suzuki added that the Federal Reserve Bank’s (FRB) outlook on the US economy is in line with the Japanese government’s view that the US economy is likely to expand.
Japan’s consumer price index (CPI) rose to an annualized 3.0% in August, up from 2.8% previously, marking the highest level since October 2023. In addition, the national core CPI excluding fresh food , hit a six-month high. of 2.8%, up for the fourth consecutive month and in line with market expectations.
The Federal Open Market Committee (FOMC) cut the federal funds rate to a range of 4.75% to 5.0%, marking the Fed’s first rate cut in four years. Fed policymakers updated their quarterly economic forecasts, raising the median projection for unemployment to 4.4 percent by the end of 2024, up from the 4.0 percent estimate made in June. They also raised their long-term forecast for the federal funds rate from 2.8 percent to 2.9 percent.
Federal Reserve Chairman Jerome Powell commented on the aggressive 50 basis point interest rate cut, saying, “This decision reflects our increased confidence that with the right adjustments to our policy approach, we can maintain a market of strength of strong labour, we achieve moderate economic growth and bring inflation down to a sustainable level of 2%.”
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 percent year-on-year, marking the ninth straight month of growth, but fell short of the anticipated 10.0 percent. Imports rose just 2.3 percent, the slowest pace in five months, significantly beating the expected 13.4 percent increase.

Technical analysis: USD/JPY tests 144.50 near upper limit of descending channel

USD/JPY is trading around 144.40 for the month. Daily chart analysis shows that the pair is moving higher in a descending channel. A break above the upper channel level would lead to a change in momentum from a bearish trend to an uptrend. Additionally, the 14-day Relative Strength Index (RSI) is slightly below the 50 level. A break above this threshold could signal the emergence of bullish sentiment.

On the upside, immediate resistance appears at the upper limit of the descending channel around the 144.70 level. A break above this level could support USD/JPY to test the psychological level of 145.00.

On the downside, USD/JPY could test the 21-day EMA at 143.76, followed by the nine-day EMA at 143.00. A break below the latter could push the pair back to 139.58, which is the lowest level since June 2023.

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 weakest against the Australian dollar.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.01%	0.07%	0.27%	-0.02%	-0.34%	-0.14%	0.12%
EURO	-0.01%		0.00%	0.27%	-0.01%	-0.42%	-0.15%	0.10%
GBP	-0.07%	-0.01%		0.35%	-0.02%	-0.41%	-0.13%	0.10%
JPY	-0.27%	-0.27%	-0.35%		-0.29%	-0.70%	-0.40%	-0.27%
CAD	0.02%	0.01%	0.02%	0.29%		-0.27%	-0.12%	0.12%
AUD	0.34%	0.42%	0.41%	0.70%	0.27%		0.30%	0.51%
NZD	0.14%	0.15%	0.13%	0.40%	0.12%	-0.30%		0.23%
CHF	-0.12%	-0.10%	-0.10%	0.27%	-0.12%	-0.51%	-0.23%

The heatmap shows the percentage changes of major currencies against each other. The base currency is chosen from the left column, while the quote 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. The troubled times are likely to strengthen the value of the yen against other currencies considered riskier to invest in.

VaselineSeptember 23, 2024

0 5 minutes read