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The Japanese yen is strengthening against the USD, continuing to recover from Friday’s two-month low

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The Japanese yen is strengthening against the USD, continuing to recover from Friday’s two-month low

  • The Japanese yen is attracting buyers for the second day in a row on renewed fears of interventions.
  • Geopolitical tensions further benefit the safe-haven JPY and put pressure on the USD/JPY pair.
  • Uncertainty over the BoJ rate hike could limit gains for the JPY ahead of Japan’s snap general elections.

The Japanese Yen (JPY) continues to lead against its US counterpart for the second day in a row on Tuesday, dragging the USD/JPY pair away from its highest level since August 16 the day before. The sudden comments from Japanese officials revived fears of an intervention and proved to be a key factor underlying the JPY. This, along with the risk of a further escalation of geopolitical tensions in the Middle East, is driving some port flows towards the JPY.

That said, diminishing chances of another Bank of Japan (BoJ) rate hike in 2024 could deter JPY bulls from placing aggressive bets. Meanwhile, Friday’s upbeat US jobs report forced investors to scale back bets on another excessive rate cut by the Federal Reserve (Fed) in November, allowing the US dollar (USD) to hold near a seven-week high. This in turn could continue to provide some support to the USD/JPY pair and limit further decline.

Daily Digest Market Movers: Japanese Yen Bulls Would Refrain from Placing Aggressive Bets Amid Uncertainty Over BoJ Rate Hikes

  • Japanese Vice Minister of Finance for International Affairs Atsushi Mimura warned of speculative moves in the currency market, fueling speculation that the government could intervene to support the Japanese yen.
  • In addition, Japan’s newly appointed Finance Minister Katsunobu Kato said the government would monitor how rapid currency movements could affect the economy and take action if necessary.
  • Moreover, there are fears that tensions in the Middle East could turn into a broader conflict, driving port flows into the JPY and dragging the USD/JPY pair away from its highest level since August 16 on Monday.
  • According to the latest developments, Lebanese Hezbollah fired rockets at the Israeli port city of Haifa and a military base near the central city of Tel Aviv, while Israel bombed a number of buildings in Beirut’s southern suburbs.
  • Japanese Prime Minister Shigeru Ishiba’s recent comments saying the country is not in an environment for more rate hikes cast doubt on the Bank of Japan’s ability to tighten further in the coming months.
  • This, along with uncertainty surrounding Japan’s October 27 general election, could provide headwinds for the JPY and provide support to the USD/JPY pair amid a short-term bullish tone around the US dollar.
  • Against the backdrop of Federal Reserve Chairman Jerome Powell’s hawkish comments, the upbeat US jobs report dashed hopes for more aggressive policy easing and kept USD bulls high near a multi-week high.
  • Traders are now looking forward to the release of the FOMC minutes on Wednesday and key US inflation data – the consumer inflation numbers and the Producer Price Index (PPI) on Thursday and Friday respectively.

Technical Outlook: USD/JPY setup favors bulls and supports prospects for dip buying to emerge at lower levels

From a technical perspective, last week’s break above the 50-day Simple Moving Average (SMA), for the first time since mid-July, and the subsequent move past the 38.2% Fibonacci retracement level of the July-September downturn were seen as new seen. triggers for bulls. Furthermore, the oscillators on the daily chart have gained positive traction and suggest that the path of least resistance for the USD/JPY pair is heading upwards. So any further decline can still be seen as a buying opportunity and is likely to be contained around 147.00, which should now act as a key pivot point.

On the other hand, a sustained move back above 148.00 could trigger technical buying and lift the USD/JPY pair towards the 148.70 resistance zone on its way to the round figure of 149.00. Some follow-on buying beyond the weekly top, around the 149.10-149.15 region, will reaffirm the positive outlook and allow the bulls to regain the psychological barrier of 150.00.

Frequently asked questions about Japanese yen

The Japanese Yen (JPY) is one of the most traded currencies in the world. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the policy of the Bank of Japan, the difference 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 movements are crucial for the yen. The BOJ has at times intervened directly in currency markets, usually to depress the value of the yen, although it often refrains from doing so due to political concerns of its major trading partners. The BOJ’s ultra-loose monetary policy between 2013 and 2024 caused the yen to depreciate against its major currency peers due to increasing policy divergence between the Bank of Japan and other major central banks. More recently, the gradual unwinding of this ultra-loose policy has provided some support to the yen.

Over the past decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, especially the US Federal Reserve. This supported a wider spread between the 10-year US and Japanese bonds, favoring the US dollar against the Japanese Yen. The BoJ’s decision in 2024 to gradually phase out the ultra-loose policy, combined with interest rate cuts at other major central banks, will reduce this difference.

The Japanese yen is often seen as a safe haven investment. This means that during times of market stress, investors are more likely to invest their money in the Japanese currency due to its perceived reliability and stability. Turbulent times are likely to strengthen the yen’s value against other currencies that are considered riskier to invest in.

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