USD/JPY slips below mid-148.00s, downside potential appears limited

Vaseline6 days ago

0 3 minutes read

USD/JPY slips below mid-148.00s, downside potential appears limited

USD/JPY pulls back after hitting 16th August high on intervention fears.
Reduced bets on more BoJ rate hikes and an outsized Fed rate cut should provide support.
Any significant corrective slide could be seen as a buying opportunity and remains limited.

USD/JPY is struggling to capitalize on a modest Asian session rally or find support above the 149.00 mark and is retreating a few pips from its August 16 high reached on Monday. Spot prices are falling below the mid-148.00s, or a new daily low in the last hour, and for now appear to have snapped a three-day winning streak, although the fundamental backdrop warrants caution for bearish traders.

Japan’s Finance Ministry’s vice finance minister for international affairs, Atsushi Mimura, said the government would monitor currency movements, including speculative movements, fueling speculation about possible intervention. This in turn provides some support for the Japanese yen (JPY) and attracts some sellers around the USD/JPY pair. That said, declining chances of another interest rate hike by the Bank of Japan (BoJ) in 2024 and more aggressive policy easing by the Federal Reserve (Fed) should continue to act as tailwinds for the pair currency.

New Japanese Prime Minister Shigeru Ishiba stunned markets last week and said the economy was not ready for further rate hikes. Apart from this, political uncertainty ahead of the October 27 general election could keep JPY bulls on the sidelines. Meanwhile, upbeat US monthly jobs data released on Friday forced investors to further reduce their bets on an excessive rate cut by the Fed in November. This helps the US dollar (USD) hold on to its recent strong gains to a seven-week high and should act as a tailwind for the USD/JPY pair.

This, in turn, suggests that any subsequent slide could still be seen as a buying opportunity, making it prudent to wait for a strong follow-through sell before confirming that a week-old uptrend has exhausted itself. Going forward, there is no relevant economic data on market movement to be released on Monday. That said, speeches by influential FOMC members could influence the USD later in the North American session. Apart from this, geopolitical developments should provide a short-term boost to the USD/JPY pair.

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 ultra-loose monetary policy between 2013 and 2024 caused the yen to depreciate against its major peers due to a growing policy divergence between the Bank of Japan and other major central banks. More recently, the gradual unwinding of this ultra-tight policy has provided some support to the yen.

Over the past decade, the BoJ’s stance of sticking to an ultra-loose monetary policy has led to increased policy divergence with other central banks, particularly the US Federal Reserve. This supported a widening of the spread between US and Japanese 10-year bonds, which favored the US dollar against the Japanese yen. The BoJ’s decision in 2024 to phase out ultra-loose policy, coupled with interest rate cuts at other major central banks, narrows this gap.

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.

Vaseline6 days ago

0 3 minutes read

Frequently Asked Questions about the Japanese Yen

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