Market Data 
- The Japanese Yen drops to a fresh multi-month low on Wednesday and remains vulnerable.
- The BoJ rate-hike uncertainty overshadows a stronger Japanese PPI and undermines the JPY.
- Elevated US bond yields weigh on the JPY further amid a bullish USD, and ahead of the US CPI.
The Japanese Yen (JPY) has hit a fresh low since July 30 against its American counterpart during the Asian session on Wednesday, albeit it managed to defend the 155.00 psychological mark. Despite a rise in Japanese producer prices in October, investors seem convinced that a fragile minority government in Japan could make it difficult for the Bank of Japan (BoJ) to hike interest rates again. Adding to this, worries that US President-elect Donald Trump’s promised tariffs could significantly impact Japanese exports turn out to be a key factor undermining the JPY.
Furthermore, expectations that Trump’s inflationary import tariffs could limit the scope for the Federal Reserve (Fed) to cut interest rates remain supportive of elevated US bond yields. This further seems to weigh on the lower-yielding JPY, which, along with a bullish US Dollar (USD) act as a tailwind for the USD/JPY pair. Meanwhile, the recent JPY fall raises the possibility of an intervention by Japanese authorities. This might hold back the JPY bears from placing fresh bets ahead of the release of the US consumer inflation figures later this Wednesday.
Japanese Yen continues to be undermined by a combination of factors
- The Bank of Japan’s preliminary report released this Wednesday revealed that Japan’s Producer Price Index (PPI) rose by 3.4% in October compared to the same time period last year and increased by 0.2% on a monthly basis.
- The higher-than-estimated readings could possibly lead to an uptick in demand-driven inflation, though they were offset by worries that higher producer prices stemming from a weaker Japanese Yen could impact household spending.
- This comes on top of the political uncertainty in Japan and further raises doubts about the Bank of Japan’s ability to tighten its monetary policy, which continues to undermine the JPY and acts as a tailwind for the USD/JPY pair.
- Earlier this week, the BoJ Summary of Opinions from the October meeting showed that policymakers were divided on rate hike timing, adding a layer of uncertainty amid US President-elect Donald Trump’s expected protectionist tariffs.
- The US Dollar consolidates its recent gains to the highest level since April amid hopes that Trump’s expansionary policies will boost inflation and limit the scope for the Federal Reserve to ease its monetary policy more aggressively.
- Richmond Fed President Tom Barkin noted on Tuesday that while inflation appears to be coming down, it might still get stuck above the central bank’s target and that the labor market might be fine or might continue to weaken from here.
- Separately, Minneapolis Fed President Neel Kashkari said that while the US central bank has many reasons to feel confident about its long-running battle with transitory inflation, it still may be too soon to declare outright victory.
- According to the CME Group’s FedWatch Tool, traders are currently pricing in a less than 60% chance of a 25-basis-points rate cut and see around a 40% probability for an on-hold decision at the next FOMC meeting in December.
- The yield on the benchmark 10-year US government bond remains close to a multi-month peak touched after Trump’s victory in the US presidential election, offering support to the USD and undermining the lower-yielding JPY.
- The USD bulls, however, take a pause for a breather and keenly await the release of the US inflation report, which is expected to show that the headline Consumer Price Index (CPI) rose by 2.6% over the 12 months to October.
USD/JPY needs to find acceptance above 155.00 for bulls to retain near-term control
From a technical perspective, the USD/JPY pair continues with its struggle to make it through the 155.00 round figure. The said handle should now act as a key pivotal point, which if cleared decisively should pave the way for additional gains. Given that oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone, spot prices might then surpass the July swing high, around the 155.20 area, and aim to reclaim the 156.00 mark. The momentum could extend further towards the 156.60 intermediate hurdle en route to the 156.90-157.00 region.
On the flip side, any meaningful corrective pullback now seems to find decent support near the 154.00 round figure ahead of the overnight swing low, around the 153.40 area. Any further decline could be seen as a buying opportunity near the 153.00 mark, which, in turn, should help limit losses for the USD/JPY pair near the 152.65-152.60 horizontal support. A convincing break below the latter could drag spot prices below the 152.00 mark and expose the very important 200-day Simple Moving Average (SMA) resistance breakpoint, around the 151.60-151.55 region. The latter should act as a strong near-term base, which if broken decisively might shift the bias in favor of bearish traders.
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.
