- The Japanese Yen snapped a three-day winning streak against the USD on Wednesday.
- The US-China trade talks optimism is seen weighing heavily on the safe-haven JPY.
- A modest USD uptick further supports USD/JPY ahead of the FOMC policy decision.
The Japanese Yen (JPY) remains depressed through the Asian session on Wednesday, which, along with a modest US Dollar (USD) uptick, assists the USD/JPY pair to stick to its intraday gains above the 143.00 mark. The global risk sentiment gets a strong boost following the announcement of the US-China trade talks in Switzerland this week. This, in turn, undermines demand for traditional safe-haven assets, including the JPY. The USD, on the other hand, benefits from some repositioning trade ahead of the key central bank event risk.
The Federal Reserve (Fed) will announce its decision at the end of a two-day policy meeting later this Wednesday. Investors will look for cues about the future rate-cut path, which will play a key role in influencing the USD price dynamics and provide a fresh impetus to the USD/JPY pair. In the meantime, the growing acceptance that the Bank of Japan (BoJ) will raise interest rates further in 2025 amid the broadening inflation in Japan, along with persistent geopolitical risks, warrants some caution before placing aggressive JPY bearish bets.
Japanese Yen bulls remain on the sidelines amid US-China trade talks optimism
- US Treasury Secretary Scott Bessent, along with US Trade Representative Jamieson Greer, will travel to Switzerland later this week for trade talks with Chinese Vice Premier He Lifeng. This comes after Bessent on Tuesday said the Trump administration could announce trade deals with some of the largest trade partners as early as this week and boost investors’ confidence.
- This, in turn, is seen undermining demand for traditional safe-haven assets and exerting pressure on the Japanese Yen during the Asian session on Wednesday. The US Dollar, on the other hand, edges higher following a three-day losing streak amid some repositioning trade ahead of the crucial FOMC decision and lifts the USD/JPY pair back above the 143.00 mark.
- The Federal Reserve is expected to leave interest rates unchanged at the end of a two-day policy meeting. Hence, the market focus will be on the accompanying policy statement. Apart from this, Fed Chair Jerome Powell’s comments at the post-meeting press conference will be scrutinized for cues about the future rate-cut path, which will drive the USD in the near term.
- Meanwhile, the Bank of Japan reiterated last week that it remains committed to raising rates further if the economy and prices move in line with its forecasts. Moreover, expectations that sustained wage hikes will boost consumer spending and inflation in Japan keep the door open for further policy normalization by the BoJ and interest rate hikes by the end of this year.
- Meanwhile, a Kremlin spokesman warned that an appropriate response will be given immediately if Ukraine does not halt the fire. Adding to this, Israel’s security Cabinet unanimously approved a plan to widen the military offensive in Gaza and gradually seize control of the territory. This keeps geopolitical risks in play and should limit deeper JPY losses.
USD/JPY needs to surpass 143.55-143.60 hurdle to support prospects for further gains
From a technical perspective, last week’s failure near the 200-period Simple Moving Average (SMA) on the 4-hour chart and the subsequent downfall favor bearish traders. Moreover, oscillators on daily/hourly charts are holding in negative territory, suggesting that the path of least resistance for the USD/JPY pair remains to the downside. Hence, any further move up might still be seen as a selling opportunity near the 143.55-143.60 region. This, in turn, should cap spot prices near the 144.00 mark. This is followed by the 144.25-144.30 supply zone, which, if cleared decisively, might trigger a short-covering rally and lift spot prices to the 145.00 psychological mark.
On the flip side, the 142.35 area, or the weekly low, now seems to protect the immediate downside for the USD/JPY pair ahead of the 142.00 mark. A convincing break below the latter could make spot prices vulnerable to accelerate the fall further towards the next relevant support near the 141.60-141.55 region en route to the 141.00 round figure.
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.
