- The Japanese Yen attracts some follow-through buying amid fears of a government intervention.
- The uncertainty over the BoJ’s rate-hike plans and the upbeat mood could cap the safe-haven JPY.
- Bets for a less aggressive Fed easing may underpin the USD and lend support to the USD/JPY pair.
The Japanese Yen (JPY) strengthens against its American counterpart for the second straight day on Monday and moves away from the lowest level since early August touched last week. Comments from Japanese authorities fueled speculations about possible government intervention, along with geopolitical risks, turn out to be key factors underpinning the safe-haven JPY. That said, a combination of factors might keep a lid on any meaningful JPY appreciation.
BoJ Governor Kazuo Ueda warned on Friday about the high uncertainty surrounding the country’s recovery prospects and stressed the need to keep a close eye out for the impact of market volatility on the economy. This comes on top of Japanese Prime Minister Shigeru Ishiba’s surprise opposition to additional rate hikes and suggests that the BoJ will not rush to tighten its policy further ahead of the general election in Japan on October 27.
Apart from this, the prevalent risk-on mood, bolstered by China’s stimulus measures, should cap gains for the safe-haven JPY. Meanwhile, expectations that the Federal Reserve (Fed) will proceed with modest interest rate cuts over the next year keep the US Treasury bond yields elevated and could further undermine the low-yielding JPY. This, along with a bullish US Dollar (USD) sentiment, should offer support to the USD/JPY pair.
Daily Digest Market Movers: Japanese Yen continues to be underpinned by renewed intervention fears
- Japan’s top currency diplomat, Atsushi Mimura, warned against speculative trading and said on Friday that authorities are watching FX moves with a high sense of urgency.
- Adding to this, Japan’s Deputy Chief Cabinet Secretary Kazuhiko Aoki noted that it is important for currencies to move in a stable manner reflecting economic fundamentals.
- The comments fueled speculations about a possible government intervention to prop up the domestic currency and underpin the Japanese Yen at the start of a new week.
- Bank of Japan Governor Kazuo Ueda said on Friday that the economy was recovering moderately and the underlying inflation is likely to gradually accelerate to the 2% target.
- Ueda added that the central bank must focus on the economic impact of unstable markets and risks from overseas, suggesting the BoJ was in no rush to raise interest rates further.
- Investors cheered the launch of two funding schemes by the People’s Bank of China (PBOC) aimed at supporting the development of capital markets, lifting global equity markets.
- The Israeli army launched a series of air strikes across Lebanon and also intensified attacks across Gaza, raising the risk of a further escalation of tensions in the Middle East.
- The yield on the benchmark 10-year US government bond holds above the 4% mark amid bets for a regular 25 basis points rate cut by the Federal Reserve in November.
- The US Dollar stalls its corrective pullback from the highest level touched since early August last Thursday, which, in turn, might act as a tailwind for the USD/JPY pair.
Technical Outlook: USD/JPY dip-buying to limit the downside, 148.00 mark holds the key for bulls
From a technical perspective, oscillators on the daily chart are holding in positive territory and warrant caution before placing aggressive bearish bets. That said, weakness below the 149.00 mark and the 148.85 horizontal support could drag the USD/JPY pair further towards the 148.20 region. This is closely followed by the 148.00 round figure, below which the corrective decline could extend further towards the 147.35-147.30 area en route to sub-147.00 levels. That said,
On the flip side, the 149.70-149.75 region now seems to act as an immediate hurdle ahead of the 150.00 psychological mark and the 150.30 area, or the monthly peak touched last week. A sustained strength beyond should pave the way for a move towards the August swing high, around the 150.85-150.90 zone. Some follow-through buying will be seen as a fresh trigger for bullish traders and allow the USD/JPY pair to reclaim the 152.00 before targeting the next relevant hurdle near the 152.70-152.75 area.
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.
