- USD/JPY loses ground around 143.55 in Tuesday’s early Asian session.
- Fed rate cut maintains bearish mood surrounding USD/JPY.
- BoJ policymakers tempered another hike speculation, which might cap the JPY’s upside; rising geopolitical risks could boost the JPY.
The USD/JPY pair trades with mild losses near 143.55 during the early Asian session on Tuesday. The decline in US Dollar (USD) continues to weigh on the pair. The US September Consumer Confidence is due later in the day and the Federal Reserve (Fed) Governor Michelle Bowman is set to speak.
The Fed rate cut last week had been highly expected, though the decision to cut by 50 basis points (bps) was somewhat of a surprise. Minneapolis Fed President Neel Kashkari said on Monday that he believes there should be and will be additional interest rate cuts in 2024. However, Kashkari expects future cuts to be smaller than the one from the September meeting.
Chicago Fed President Austan Goolsbee noted, “Many more rate cuts are likely needed over the next year, rates need to come down significantly.” Additionally, Atlanta Fed President Raphael Bostic said Monday that the US economy is close to normal rates of inflation and unemployment and the central bank needs monetary policy to “normalize” as well. The Greenback remains under pressure amid the rising expectation that the Fed will cut additional interest rates in the remainder of 2024.
However, the speculation that the Bank of Japan (BoJ) is not in a rush to raise interest rates might cap the upside for Japanese Yen (JPY). The BoJ left interest rates unchanged last week as policymakers need time to assess when it needs to raise borrowing costs further. “The majority of market players had expected the next rate hike to take place in December, but Mr. Ueda’s remarks prompted some of them to think that maybe it will be delayed until early next year,” said Tomoichiro Kubota, senior market analyst at Matsui Securities Co.
Meanwhile, the rising geopolitical tensions in the Middle East might boost the safe-haven flows, benefiting the JPY. Bloomberg reported early Tuesday that Israel carried out airstrikes on targets in southern Lebanon, killing almost 500 people in one of the bloodiest days of fighting in nearly two decades and fuelling concerns of all-out conflict.
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 current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.
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 supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.
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.
