Market Data 
- The Japanese Yen edges higher in reaction to an upward revision of Japan’s Q3 GDP.
- The recent decline in the US bond yields undermines the USD and also benefits the JPY.
- Doubts over the BoJ’s ability to hike interest rates further cap the upside for the JPY.
The Japanese Yen (JPY) kicks off the new week on a positive note and draws support from a combination of factors, though the upside potential seems limited. Government data released earlier today showed that Japan’s economy expanded at a faster pace than initially estimated in the third quarter. Apart from this, geopolitical tensions and concerns about US President-elect Donald Trump’s impending trade tariffs offer support to the safe-haven JPY.
Meanwhile, the recent fall in the US Treasury bond yields contributes to the JPY’s relative outperformance against its American counterpart and keeps the USD/JPY pair depressed below the 150.00 psychological mark during the Asian session. That said, the market split over whether the Bank of Japan (BoJ) will hike interest rates further at its December meeting might hold back the JPY bulls from placing aggressive bets and limit losses for the currency pair.
Japanese Yen is underpinned by a combination of factors; bulls lack conviction
- Japan’s third-quarter GDP was revised to show a 0.3% growth as compared to the 0.2% estimated originally. On a yearly basis, the economy expanded by 1.2%, above prior estimates of 0.9%.
- The yearly rate marks a sharp slowdown from the 2.2% rise in the prior quarter, while sluggish private consumption suggests that the boost from bumper wage hikes is running out of steam.
- This, in turn, raises doubts over whether the Bank of Japan has enough headroom to raise interest rates further and fails to assist the Japanese Yen to build on a modest intraday uptick on Monday.
- The US Nonfarm Payrolls (NFP) report released on Friday revealed that the economy added 227K jobs in November against the previous month’s upwardly revised 36K and 200K anticipated.
- Additional details of the report showed that the Unemployment Rate edged up to 4.2% in November from 4.1%, as expected, and the Average Hourly Earnings held steady at 4% vs 3.9% forecasted.
- The crucial jobs data reaffirmed market expectations that the Federal Reserve is unlikely to pause in its easing cycle and lower borrowing costs again at its upcoming policy meeting in December.
- The University of Michigan’s preliminary gauge of US consumer sentiment rose to 74.0 in December reading from 71.8 while one-year inflation expectations rose to 2.9% from 2.6% in November.
- Cleveland Fed President Beth Hammack noted that the economic landscape calls for modestly restrictive policy, though the market view of one cut between now and late January is reasonable.
- San Francisco Fed President Mary Daly said that the labor market remains in a good position and that the central bank will still step in with additional rate hikes if price growth begins to spiral once again.
- Chicago Fed President Austan Goolsbee stated that the overall progress on inflation is still encouraging and any pause in the rate-cutting would come if conditions in inflation or the labor market change.
- Fed Governor Michelle Bowman said that she prefers to cut the interest rates cautiously and emphasized that the underlying inflation remains uncomfortably above the central bank’s 2% goal.
- The yield on the benchmark 10-year US government bond hangs near its lowest level since October 21, capping the US Dollar recovery from a multi-week low and supporting the lower-yielding JPY.
USD/JPY remains confined in a range; 100-day SMA holds the key for bullish traders
From a technical perspective, the range-bound price action could be categorized as a bearish consolidation phase against the backdrop of the recent pullback from a multi-month top touched in November. Moreover, oscillators on the daily chart are holding in negative territory and suggest that the path of least resistance for the USD/JPY pair is to the downside. That said, last week’s resilience below the 100-day Simple Moving Average (SMA) warrants some caution for bearish traders.
In the meantime, the post-NFP low, around the 149.35 area, now seems to act as immediate support ahead of the 149.00 mark and the 100-day SMA, currently pegged near the 148.70-148.65 region. The latter coincides with a nearly two-month low touched last Tuesday and should act as a key pivotal point. Some follow-through selling could 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.
On the flip side, attempted recovery might now confront some resistance near the 150.55 region. This is followed by the 150.70 hurdle, the 151.00 round figure and last week’s swing high, around the 151.20-151.25 zone. A sustained move beyond the latter should allow the USD/JPY pair to test the very important 200-day SMA near the 152.00 mark. Some follow-through buying will suggest that the corrective decline from a multi-month high has run its course and shift the bias in favor of bullish 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.
