- The Japanese Yen attracts some buyers after a stronger-than-expected Japan’s National CPI.
- A weaker risk tone and retreating US bond yields also lend support to the lower-yielding JPY.
- The Fed’s hawkish shift underpins the USD and acts as a tailwind for the USD/JPY pair.
The Japanese Yen (JPY) recovers slightly after touching a five-month trough against its American counterpart during the Asian session on Friday, albeit it lacks any follow-through buying. Higher-than-expected Japanese Consumer Price Index (CPI), along with the risk-off mood and a modest pullback in the US Treasury bond yields, turn out to be key factors offering some support to the safe-haven JPY. That said, the lack of clarity on how soon the BoJ could push up borrowing costs should cap the JPY.
That said, the Federal Reserve’s (Fed) signal that it would slow the pace of interest rate cuts in 2025 acts as a tailwind for the US bond yields and caps gains for the lower-yielding JPY. Furthermore, the Fed’s hawkish shift assists the US Dollar (USD) in preserving its strong weekly to a two-year top and contributes to limiting the downside for the USD/JPY pair. Traders now look to the release of the US Personal Consumption Expenditure (PCE) Price Index for a fresh impetus heading into the weekend.
Japanese Yen bulls remain on the sidelines amid the BoJ rate hike uncertainty
- The Bank of Japan decided on Thursday to keep the short-term rate target unchanged in the range of 0.15%-0.25% and offered few clues on how soon it could push up borrowing costs.
- Data released by the Japan Statistics Bureau this Friday showed that the National Consumer Price Index (CPI) climbed 2.9% YoY in November, compared to the previous reading of 2.3%.
- Additional details of the report revealed that the National CPI ex Fresh food arrived at 2.7% YoY during the reported month versus 2.3% in October and was above expectations of 2.6%.
- Moreover, CPI ex Fresh Food, Energy rose 2.7% YoY in November, compared to the 2.3% rise recorded in the previous month, keeping hopes alive for a potential rate hike in January or March.
- In fact, BoJ Governor Kazuo Ueda reiterated the central bank’s resolve to keep raising interest rates from their current very low levels if the economy and prices move in line with its forecasts.
- The Federal Reserve indicated on Wednesday that policymakers see the fed funds rate falling to 3.9% in 2025, suggesting two quarter-point rate cuts compared to four projected in September.
- The yield on the benchmark 10-year US government bond shot to its highest level in more than six months on Thursday, lifting the US Dollar to a two-year peak and undermining the Japanese Yen.
- The focus now shifts to the US Personal Consumption Expenditure (PCE) Price Index, or the Fed’s preferred inflation gauge, which should provide a fresh impetus to the USD/JPY pair.
USD/JPY could climb further once the 158.00 immediate hurdle is cleared
From a technical perspective, the overnight strong move up beyond the previous multi-month top, around the 156.75 area, was seen as a fresh trigger for bullish traders. That said, the Relative Strength Index (RSI) has moved on the verge of breaking into the overbought territory on the daily chart. This makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for any further gains.
Any meaningful slide below the 157.00 mark, however, now seems to find some support near the 156.75 region. Some follow-through selling could pave the way for a deeper corrective fall and drag the USD/JPY pair to the 156.00 round figure. The next relevant support is pegged near the 155.50 horizontal zone, below which spot prices could drop to the 155.00 psychological mark. The latter should act as a key pivotal point, which if broken decisively might shift the near-term bias in favor of bearish traders.
On the flip side, bullish traders might now wait for a move beyond the 158.00 mark before placing fresh bets. The USD/JPY pair might then accelerate the positive move toward the 158.45 intermediate hurdle before aiming to reclaim the 159.00 round figure. The momentum could extend further towards the 159.60-159.65 region en route to the 160.00 psychological mark and the 160.20 hurdle. The latter coincides with the top boundary of the multi-month-old ascending channel and should act as a strong barrier.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential 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 directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
Source: Japanese Yen struggles to capitalize on modest intraday bounce; remains vulnerable
