Market Data 
- The Japanese Yen attracts some buyers on Thursday, albeit lacking bullish conviction.
- Rebounding US bond yields and a positive risk tone cap gains for the safe-haven JPY.
- Traders seem reluctant to place aggressive bets ahead of the US NFP report on Friday.
The Japanese Yen (JPY) edges higher against its American counterpart during the Asian session on Thursday and moves away from the weekly low touched on the previous day. Bets that the Bank of Japan (BoJ) will hike interest rates again in December amid signs that the underlying inflation in Japan is gaining momentum turn out to be a key factor underpinning the JPY. Apart from this, persistent geopolitical risks, trade war fears, and the recent decline in the US Treasury bond yields offer additional support to the JPY amid subdued US Dollar (USD) price action.
Meanwhile, BoJ board member Toyoaki Nakamura strikes a dovish tone this Thursday, which, along with the prevalent risk-on mood, acts as a headwind for the safe-haven JPY. Furthermore, the overnight hawkish remarks by influential FOMC members, including Federal Reserve (Fed) Chair Jerome Powell, suggest that the US central bank will take a cautious stance on cutting rates. This leads to a modest bounce in the US bond yields and contributes to capping the lower-yielding JPY as traders keenly await the US Nonfarm Payrolls (NFP) report on Friday.
Japanese Yen struggles to attract any meaningful buyers amid mixed BoJ rate hike signals
- Stronger Tokyo Consumer Price Index for November and Bank of Japan Governor Kazuo Ueda’s hawkish remarks last week lifted bets for another interest rate hike in December.
- BoJ board member Toyoaki Nakamura said that he is not confident about the sustainability of wage growth and sees a chance that inflation may miss 2% from fiscal 2025 onward.
- Russia’s Deputy Foreign Minister Sergei Ryabkov cautioned that Russia could escalate its military actions in Ukraine if the US and its allies fail to acknowledge its boundaries.
- Investors remain concerned that US President-elect Donald Trump’s tariff plans would trigger the second wave of global trade wars and its effects on the global economy.
- The Institute for Supply Management’s (ISM) Services PMI dropped to a three-month low level of 52.1 in November, from 56.0 in the prior month and missing estimates.
- The benchmark 10-year US Treasury bond yield slipped on Wednesday and registered its lowest closing level since October 21, though the downside remains limited.
- The Federal Reserve’s Beige Book showed on Wednesday that economic activity increased slightly in November as businesses grew more upbeat about demand prospects.
- St. Louis Fed President Alberto Musalem said that it might be possible to pause rate cuts at the upcoming meetings, but they are keeping all options open for the December meeting.
- Fed Chair Jerome Powell said the US central bank can take a little more cautious approach in cutting interest rates toward neutral as the economy remains in good shape.
- San Francisco Fed President Mary Daly reiterated that the central bank does not need to be urgent on rate cuts and there’s a lot more work to do to achieve 2% inflation.
- This, along with speculations that Trump’s policies will reignite inflation, triggers a modest bounce in the US bond yields and acts as a tailwind for the US Dollar.
- Traders now look to the release of the usual US Weekly Initial Jobless Claims. The focus, however, remains on the US Nonfarm Payrolls (NFP) report on Friday.
USD/JPY bears have the upper hand while below 200-day SMA; break below 100-day SMA awaited
From a technical perspective, the USD/JPY pair showed resilience below the 100-day Simple Moving Average (SMA) earlier this week and the subsequent recovery from its lowest level since October 11 supports prospects for additional gains. That said, oscillators on the daily chart are holding in negative territory and are still far from being in the oversold zone. This, in turn, suggests that any further move up beyond the overnight swing high, around the 151.20-151.25 region, is likely to remain capped near the 152.00 mark. The latter coincides with the very important 200-day SMA and should act as a key pivotal point. A sustained strength beyond will suggest that the recent corrective decline from a multi-month high touched in November has run its course and shift the bias in favor of bullish traders.
On the flip side, weakness below the 150.00 psychological mark now seems to find decent support near the 149.55-149.50 horizontal zone. The next relevant support is pegged near the 149.00 mark ahead of the 100-day SMA, currently around the 148.80 region. A sustained break and acceptance below the latter will be seen as a fresh trigger for bearish traders and drag the USD/JPY pair to the 148.10-148.00 region en route to the 147.35-147.30 zone and the 147.00 round figure.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
